Additional Oil Tax Cuts by '10

The government will propose more tax cuts for the oil industry this year and implement them in 2010, Kremlin economic aide Arkady Dvorkovich said Friday, without giving many details of the plan.

President Dmitry Medvedev met top officials Thursday to discuss tax reform after a debate between a pro-growth camp, which wanted a major cut in value-added tax, and fiscal hawks, led by Finance Minister Alexei Kudrin.

Following heated exchanges, the two sides agreed to a compromise that postponed a decision on VAT until 2009 and required the government to look instead at cutting taxes on the oil sector.

"In effect ... a decision was made on lowering the tax burden for the oil sector," Dvorkovich told a news conference. He said the proposal would be drawn up this year and applied from 2010.

He said discussions were continuing over whether the country would cut the oil export duty or mineral extraction tax, which together provide the same amount of budget revenues as the VAT.

Russia said Thursday that it would slash the oil export duty from Oct. 1 to allow oil firms hit by weaker crude prices to save $5.5 billion, boosting their stocks and money market liquidity.

The tax initiatives, which include a more favorable depreciation regime allowing the firms to write 30 percent of new equipment costs off their tax base, will cost the state a maximum 0.5 percent of annual GDP, Dvorkovich said.