The draft law on the taxation of production-sharing agreements
(PSAs) has matured in the Cabinet. However, the deputies of the
Duma have already subjected it to severe criticism. The Duma deputies
want to make the government change its mind and explain that the
draft resuscitated by the Ministry of Finance is not suitable.
"Our task is to bring about a new morning rather than crowing,"
said Sergei Ivanenko, Head of the Duma Commission for PSA.
The essence of the discrepancy is simple - instead of the present
four taxes paid by the participant in a PSA (tax on subsoil usage,
single social tax, profit tax and zero rate of VAT) the government
would like to raise significantly the number of mandatory taxes
and also make them pay VAT in full. Such a proposal virtually
eliminates one of the main ideas of PSA, which guaranteed the
investor a stable and predictable tax regime throughout work on
a project. The foreigners who make the main investments under
this regime are unlikely to accept a situation where it is necessary
to constantly restructure and revise business plans following
all the trajectories of Russia's tax laws. For the past several
years due to the functioning of PSAs the Russian oil industry
obtained USD2 billion of investments. However, according to the
estimates of different experts, the total investment requirements
of the industry may be assessed at USD 8-10 billion annually.
Even though last year Russian oil companies invested several billions
from their own profits in the development of production (thanks
to constantly high international oil prices despite all the forecasts),
the industry still is dearth of investments. Investments on production-sharing
terms may represent the most interesting method for Western companies
to develop new oil deposits in Russia. Now it is under threat.
Sergei Ivanenko said: "We will continue promoting the ideas
that we have been promoting for several years already." These
ideas can be summed up as establishing in the Tax Code the current
procedure for taxing PSAs. But here, notes the Head of the Budget
Committee of the Duma Alexander Zhukov, "there is no sense
in fighting windmills" and engage in an unequal fight over
the two alternative variants (one by the Cabinet and the other
one by the Duma), where the winner will be decided by the positive
assessments of the government and the President's Legal Department.
However, the deputies are reluctant to accept the government's
variant. Consequently they have asked the President to interfere
and help. The deputies propose synchronising the work of the Duma
and the government on the taxation of PSAs and also attract present
and potential investors in this work. Naturally the deputies hope
that the result of this cooperation will resemble more their ideas
on PSA taxation, than those of the government. According to Zhukov,
"given a positive approach" there is a strong chance
that the draft law will pass through the Duma already in autumn.