- Options include changes to fuel-subsidy formula, windfall tax
- Government discussions ongoing, there is no final decision yet
According to Bloomberg article published on April 28, 2023, Russia’s government is turning again to its oil industry for cash, exploring options from cutting fuel subsidies to a windfall tax as it seeks to boost budget revenue to fund its war in Ukraine, according to people familiar with the matter.
One of the options under consideration is changing the formula used to calculate the compensation Russian refiners receive for supplying gasoline and diesel to the domestic market. Last year, this amounted to 2.17 trillion rubles ($26.6 billion), a hefty sum for a country burdened with massive military spending.
To shrink these subsidies, the Urals discount to Brent used in the formula could be changed, the people said, asking not to be identified because the information isn’t public. Or the base fuel price used in the calculations could be increased by as much as 50%, Bloomberg reported earlier this week.
Another alternative is a one-off windfall tax on oil companies, the people said, adding that there is no final decision yet on any of the options.
Russia’s public finances have deteriorated sharply since the Kremlin started the war in Ukraine. A European ban on purchases of the most of Russian crude and petroleum products as well as the G-7 price cap has reduced the price of the nation’s oil, a key source of budget revenue. At the same time, spending on the military and national security has surged and is now second only to the government’s social programs as a proportion of the budget.
Russia’s Deputy Prime Minister Alexander Novak and Deputy Finance Minister Alexei Sazanov confirmed this week that ministries were indeed discussing tweaks in the fuel-subsidy formulas, without giving any further details as talks continue.
So far the nation’s oil producers have been excluded from a government proposal for a corporate windfall tax because the government has already tweaked some taxes to boost its revenue from oil and gas, which account for about a third of total budget proceeds.
The government will make a final decision either in the coming week or right after public holiday in early May, Tass reported on Wednesday, citing Sazanov. After the government decides, it will submit changes to parliament, Novak said on Tuesday, according to Tass.
