Analysts at VTB Capital on Wednesday, August 5, presented their review of Russian Oils – New patches on shabby clothes, in which they assessed the draft law presented by the Ministry of Finance, which would change the additional income tax (APT).
Today, the oil industry is under pressure due to the deteriorating macroeconomic situation, tax regime and restrictions imposed under the OPEC + agreement. Tax breaks remain the main factor in the sector’s profitability and the largest, if not the only, source of profit for Russian oil companies, analysts said. As a result, potential changes in the tax regime could negatively affect the investment attractiveness of Russian oil companies.
Experts believe that the companies Gazprom Neft and Rosneft will feel the negative effect of the changes more than the others, due to the fact that they are using income tax for the second group of fields. According to experts, with oil prices at $ 45-47 per barrel, Gazprom Neft’s EBITDA in 2021 and 2022 may decrease by $ 1 billion (18%) and $ 0.9 billion (16%), respectively. For Rosneft, the decline may amount to $ 1.1 billion (6%) and $ 1.3 billion in the specified period.
For Lukoil and Surgutneftegaz, potential losses are estimated at 0.8-3.0% EBITDA. Analysts also added that Tatneft, which has not yet paid the income tax, will not feel any changes at the initial stage.
The tax on additional income from the extraction of hydrocarbons is effective from 1 January 019. This is a direct tax, it is charged on the amount of additional income from the extraction of hydrocarbons in each subsoil plot, which is calculated as a positive difference between the income and expenses received in this subsoil plot.
In early August this year, the Ministry of Finance prepared a bill that changes the parameters for calculating this income tax. In particular, it is proposed to limit for all groups of deposits the right to reduce the tax base by more than 50% due to the transfer of historical losses. In addition, the indexation rate for historical losses can be reduced from 16.3% to 7%, and the amount of deductible expenses can be reduced.
Also, the bill proposes to change the rules for calculating income tax for a group of fields that are provided with exemptions on the export duty on oil. So, instead of the current reducing coefficients for the severance tax (which is used in calculating the severance tax) in 2021–2023, it is proposed to introduce an increasing coefficient of 1.5.