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News

Revenue Added Tax to be piloted in Russian oil industry in 2018

20.12.2016.

Revenue Added Tax (RAT) will be introduced in the Russian oil industry on a pilot basis in 2018, according to the decision made by the government’s Committee on Fuel and Energy Industry meeting on December 16, 2016, chaired by Russian Prime Minister Arkady Dvorkovich.

RAT is designed to stimulate development of new oil fields and ensure rational usage of the existing ones. The new tax reduces total tax burden from gross profit while taxing additional revenue from oil and gas extraction.

The controversial tax was criticized by the Ministry of Energy after it was suggested by the Finance Ministry. One of the main controversies was about voluntary transition to RAT.

The Finance ministry insisted all new oil fields that receive benefits from the state move to the new system, other than those who had received benefits on duties as of early 2016.

Ministry of Energy, on the other hand, felt it would be right to let oil producers choose between moving to RAT and preserving their existing benefits. The Ministry also suggested that the new tax is first introduced with several pilot fields before applying to the entire industry. The Finance Ministry instead said the tax innovations should be launched throughout the industry.

Head of the Russian Ministry of Energy Alexander Novak said in October 2016 that the Ministry was sticking with its plans to introduce RAT on pilot projects in 2017.

The Ministry’s plan was further detailed by First Deputy Minister Alexey Texler, who said the pilot RAT projects will take between 3 and 5 years, and that the Ministry expected these projects to show an increase in tax revenue starting from the second year after application.

Now the two Ministries seem to have agreed on the key parameters of the RAT law, but some details still remain to be worked out.

Ministry of Energy expects the pilot RAT project to be implemented over one year, before being applied on a permanent basis.