Kudrin Says No Tax Cuts for Oil Firms

ReutersAlexei Kudrin said previous large tax breaks for the oil industry should be enough to revive crude output growth.
Finance Minister Alexei Kudrin said Tuesday that he expected the government to decide on its future tax policies later this month but added that the oil industry should not expect any more large tax breaks.

Kudrin, the government's main fiscal hawk, said the oil industry had already received large tax breaks as part of the most recent reform and that this should be enough to revive crude output growth.

"[If oil firms are not happy] I'd suggest they offer their assets and fields at open auctions. I'm sure there will be an awful lot of people wanting to buy them with the current tax burden," Kudrin said in an interview.

"As an economist, I can say that Russia has reached a line beyond which you cannot cut taxes."

Instead, Kudrin argues that the tax burden should be raised to fund pension reforms in a country where the average pension stands at just 4,000 rubles ($158) a month.

"Some will say [raising taxes] is not a liberal position. … But I'm not afraid about my image," he said.

He said the country would spend all its Reserve Fund and National Welfare Fund, currently at $174 billion, by 2027 as the share of windfall revenues from energy exports will fall to 11 percent of the GDP from around 25 percent currently.

"It is almost impossible to reduce taxes in a situation with such a trend," said Kudrin, whose ministry is fighting against the growth-focused Economic Development Ministry, which wants to cut the value-added tax to 12 percent from the current 18 percent.

On Friday, the Energy Ministry suggested a further cut to the mineral resource tax by raising the tax-free threshold on extraction to $25, from the $15 set to come into force next year. It currently stands at $9.

A final decision on taxes would likely be made this month by President Dmitry Medvedev, he said.

Russian oil firms have repeatedly asked for additional tax breaks, saying they need more funds to invest in new fields and revive production growth.

They have already received around 100 billion rubles in tax breaks from next year and agreed with the government that new and depleted fields will be exempted from levies.

Kudrin also said the country might quit some of the trade deals it had entered as part of its bid to join the World Trade Organization if it does not become a member this year.

Some U.S. officials have said Russia's 15-year membership bid is at risk after the country sent troops into Georgia to support two breakaway enclaves.

Kudrin, who was until recently the country's chief WTO negotiator, said Russia had unilaterally accepted some trade obligations, but as the bid's future was becoming less clear, it was questioning the arrangement.

"The longer our accession is being delayed, the more a question arises about whether we should carry the burden of these obligations," Kudrin said.

He was more positive about Washington's move to take control of troubled U.S. mortgage agencies, saying Russia wanted to see them emerge from crisis before buying any more of their debt.