Russia Said to Study Oil-Tax Increase to Shrink 2016 Budget Gap

(Bloomberg) -- The Russian government may raise taxes on its its main source of revenue -- crude producers -- to narrow its budget deficit next year, two people with knowledge of the matter said Friday.

The state has started discussions with companies about changing a crude-extraction tax formula, one of the people said. Both asked not to be identified because the information isn’t public yet.

Different ministries are now suggesting various measures to increase budget revenues and reduce spending, but there’s no final decision yet, Natalya Timakova, the Prime Minister’s spokeswoman, said by phone Friday. Officials should agree on the measures to include them into the next year’s budget, she said. The government is set to submit the draft budget by Oct. 25.

The world’s biggest energy exporter is struggling to shake off its first recession in six years after a slump in oil prices. Russia relies on energy for about half of its budget earnings, with taxes on the extraction and export of crude accounting for about 32 percent of revenue. These earnings were 2.49 trillion rubles ($38 billion) from January to July, 16 percent lower than last year’s level, according to Bloomberg calculations based on Russia’s Treasury data.

Russia is facing an “unprecedented” financial squeeze from the sell-off in oil, which is similar to the 1980s collapse in world crude prices that undermined the Soviet Union, Deputy Finance Minister Maxim Oreshkin said Thursday.

The nation’s budget deficit was 994 billion rubles through August this year, or 2.1 percent of gross domestic product, according to the Finance Ministry. It forecasts a 2016 deficit of no more than 3 percent of GDP if oil averages $50 a barrel, Oreshkin said. Brent crude, the international benchmark, traded at about $48 in London Friday.

The ministry proposed adding the 2014 ruble-dollar exchange rate into oil extraction tax formula, as well as adjusting it with 2015 inflation rate, one of the people said. Those changes could increase the tax rate by about 10 percent, Interfax reported Friday, citing people with knowledge of the matter.

--With assistance from Olga Tanas and Andrey Biryukov in Moscow.

Copyright 2016 Bloomberg News.


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