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Profit-Based Oil Tax Mulled

The Finance Ministry is considering a shift to a profit-based tax from current duties on crude exports and mineral extraction, as oil companies warn that high taxes may hamper output, an official said Friday.

The move to an "excess profit" tax is "a very long-term task," Ilya Trunin, director of the Finance Ministry's tax and customs department, said at a conference in Moscow. He criticized tax breaks that Russia has granted to some remote fields in eastern Siberia and the Arctic for creating fiscal risks.

The Energy Ministry said in June that half of Russia's raw deposits are unprofitable to develop when oil trades at $60 per barrel under the current tax structure. President Dmitry Medvedev told international oil executives also in June that the country would return to discussing tax reform after the end of the global financial crisis.

Exemptions from export duties on crude oil pumped in eastern Siberia could cost the budget at least 120 billion rubles ($4 billion) this year, Trunin said. Rosneft, TNK-BP and Surgutneftegaz are developing fields in the region.

While a profit-based tax makes sense, the government has been slow to make the move because it is harder to administrate, said Alex Fak, an oil analyst at Troika Dialog.

Export duties and mineral extraction taxes currently are taken as a function of revenue and calculated through external oil prices and output volumes.

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