Favorable Tax Regime as an Impetus to the Development of Oil Exploration and Production Industry

According to the analysis of the international oil taxation experience, the deterioration of the structure of remaining resources in developed countries is usually accompanied by easing the tax regime and transitioning to a more complex and flexible fiscal system. Russia is also facing the problem of rising development costs due to the complex production conditions. This fact raises a question, whether the current tax system in the domestic oil sector is capable to support the rapid development of the industry further. This paper analyzes the main reasons, stages and results of reforming the Russian oil taxation system, and the quantitative example shows the inefficiency of the current tax regime under oil resource structure deterioration. It also examines the proposals for further improvement of the tax regime reflected in two draft legislations: a tax on the financial result (TFR) and an additional income tax (AIT). The paper conducts a quantitative assessment of the effectiveness of the proposed taxes on a hypothetical example of a subsoil area of the Bazhenov Formation. Based on these results, it was concluded that the existing fiscal system should be replaced by the new tax regime. Then, the effect from the transition to the TFR and AIT was calculated for the industry as a whole, using the example of field sampling. The calculation results confirm the thesis that the new tax regime would solve several problems at once: it will make the investment in oil production more attractive, increase the involvement in the development of the resources unprofitable at this moment, and ensure the growth of budget revenues. Both TFR and AIT would allow to bring a number of high-cost fields on a profitable level, however, the number of such fields, as well as the distribution of the gains made by the companies and the government from their development largely depends on the final parameters of the new tax.