Russian President Vladimir Putin has signed separate laws that phase out Russia’s crude oil export duty and to introduce a “negative excise duty,” or excise refund, on crude processed by the country’s refineries.
According to Bloomberg, the crude export duty amendment law, which also has been published, envisages cutting Russia’s crude export duty by five percentage points per year over six years starting in 2019 and completely abolishing it from 2024, according to S&P Global Platts.
Currently levied at 30 per cent, Russia’s crude export duty is set as a marginal tax based on the price of oil, with export duties for oil products set as a percentage of the export tax for crude.
The gradual reduction and abolishment of the crude export duty would push up the export netbacks, which are used as a gauge by Russian traders for setting domestic prices, and would make the latter commensurate with international prices.
The finance ministry has insisted on the reform for more than a decade, as the government estimates its indirect subsidy in the sector, through the difference between the crude and product export duties, have exceeded fivefold what refineries have spent on plant upgrades.
In order to mitigate the impact on refineries from the rise in crude prices and the disappearance of the indirect subsidy of the spread between crude and product export duties, the government has set out a mechanism for refunding refineries through the negative excise duty, based on the amount of crude they process, the light products they deliver to the domestic market and the distance to their markets.
The excise refund is calculated based on a formula that takes into account the international price of Urals crude, a basket of products produced from the processed crude and the difference between domestic prices and the export netbacks for gasoline and diesel derived from the prices in Rotterdam.
The excise refund law also sets out the excise duties on gasoline and diesel for the next three years.
Separately, Putin has approved an increase of Russia’s VAT tax to 20 per cent from 18 per cent starting in January 2019.