Since its invasion of Ukraine on February 24, the Russian government has denied many monetary statistics, but the knowledge we can see shows that Russia’s tax revenues in the first five months of 2022 have reached record levels.
The calendar year 2021, a year of strong profits for the Russian government. However, Russian tax gains in all grades of government were 31% higher in April 2022 than in April 2021. And the federal government’s liquidity from operating activities (most of which are tax gains) 32% higher in May 2022 than a year earlier.
About a portion of federal profits and one-fifth of consolidated profits come from taxes levied on oil and fuel. As shown in Figure 2, Russian oil and fuel gains are traditionally correlated with the value of oil. Figure 2 also shows that over time, the amount of profit relative to the value of oil has increased significantly.
Two points contributed to this trend. First of all, because according to Russian law, the revenue collected is based on the value of oil in dollars, the seismic depreciation of the ruble in 2015 particularly increased the yield on taxes on oil and gas.
Second, since becoming president in 2001, Vladimir Putin has been very successful in extracting more profits from Russian oil and fuel producers. In part, he and his Finance Ministry have made many confusing changes to the tax law to generate profits. In addition, compliance has a higher priority.
The case of Mikhail Khodorkovsky is a good example. Once Russia’s richest man, he was arrested in 2003 and spent the next 10 years in detention for tax evasion through his company, former oil giant Yukos.
In his 2021 e-book Oil in Putin’s Russia, Adnan Vatansever observes that this incarceration led oil corporations to override their priorities by hiring tax advisors: “Instead of profiting from their recommendation to optimize their tax payments, priority had shifted to records that were in compliance with current tax legislation.
In 2021, Russia produced 11. 6% of the world’s crude (10. 9 million barrels per day, adding oil condensate). It ranks third after the United States (20. 2% of global supply) and Saudi Arabia (12. 1%). Thanks to advances in drilling technology, U. S. production is growing up. The U. S. nearly doubled between 2010 and 2021, from 9. 7 million barrels a day.
Russia exported 4. 7 million barrels of crude oil a day in 2021. Of that total, about a part went to Europe, with the Netherlands, Germany and Poland being the main recipients. China receives about a third of Russian exports.
For a review of Table 1 of the Russian government’s consolidated tax revenues, click here.
Russia is the world’s largest manufacturer of herbal gas at the moment, accounting for 16. 8% of the total (24 trillion cubic feet) in 2019. The United States is the world leader with 23. 8% of the total.
Russia accounted for 20. 8% of herbal fuel exports (9. 1 trillion cubic feet) in 2019. Nearly 90% was transported through pipelines and the rest in liquefied herbal fuel conveyors. Europe accounted for nearly three-quarters of Russia’s herbal fuel exports. the largest exporter at the moment with 10. 8% of the world total.
Table 1 provides a review of Russia’s combined federal, state, and local tax revenues from 2006 to 2021. This era is divided into seven sub-eras, which can be characterized by the alternation of economic increases and slowdowns.
The 3 slowdowns were the global currency crisis of 2009, the Russian currency crisis of 2015-2016 and the pandemic recession of 2020. Not surprisingly, oil and fuel revenues are, in general, more volatile than non-oil and fuel revenues.
At least 3 other features are noteworthy. First of all, revenues in 2021 are much higher than in previous years. Second, Russia has a much more conservative fiscal policy than the United States. It is even capable of generating giant surpluses when the economy is strong. .
Third, the economic collapse of 2015-2016, attributable to economic sanctions imposed on Russia in reaction to the seizure of Crimea and the collapse of oil costs (partly due to the build-up in U. S. supply). It decimated government revenue. The Russian Treasury has gone through a lot of turbulence in recent years.
Even if revenues begin to fall in 2022, of which there is still no evidence, it is most likely that public finances and public opinion will be in charge of managing it.
To consult Table 2 Russian mining tax revenue and related statistics, 2006-2021, here.
The category of oil and fuel profits of the Ministry of Finance of Russia is composed of two main components: (1) the mining tax and (2) the special tasks on exported oil.
Other revenues similar to the oil and fuel industry (not discussed in this article) come from excise duties on fuels; taxes on the profits of companies that produce, refine and ship hydrocarbons; and dividends paid to the government for its stake in oil and fuel corporations.
In 2021, tax gains from oil and fuel included RUB 7. 1 trillion in taxes on mineral resources and RUB 2. 2 trillion in export duty revenue. (The total official oil and fuel profit of 9. 1 trillion rubles includes negative inflows of about two hundred billion rubles from excise tax refunds. )which subsidize Russian refineries. )
About 79 per cent of oil and fuel revenues came from crude oil and petroleum products. 21% came from vegetable fuel.
The mining tax applies to all oil and fuel production (not just export) in Russia. Table 2 shows the amounts of Russian production of oil and herbal fuel, a market value expressed in dollars for each, and a conversion of this value to rubles. The amount is then multiplied by the value to estimate the total production of Russian oil and herbal fuel. Actual tax revenues are then divided among the estimates to arrive at an effective tax rate on turnover.
Let’s review the calculations for crude oil in 2021. A non-unusual unit of measurement of crude oil production is the barrel per day, which for Russa 10. 8 million. That’s about 3. 9 billion barrels a year.
The price of Brent oil, commonly known as a benchmark for oil sold in Europe, is around $71 per barrel. Using the average exchange rate in 2021, this equates to RUB 5,219 per barrel. Multiplying the annual production by the value in rubles, you get an estimated cost of oil production in Russia of about 20. 5 trillion rubles.
Tax revenues on mineral resources from crude oil production amounted to about 6. 3 billion rubles. Dividing tax revenues from mining through estimated effects at an effective tax rate of 30. 7% (shown in the last column).
This 2021 percentage is about twice as high as the percentages of half of adolescence estimated for years prior to 2015. This strong accumulation is attributed to the sudden and significant depreciation of the ruble (appreciation of the dollar) in 2015.
Similar calculations for herbal fuel show a build-up of tax revenue as a percentage of the estimated price of herbal fuel production, for example, from 1. 2% in 2009 to 13. 1% in 2020. The big exception to this trend occurs in 2021, when the percentage falls to 4. 8%.
Although tax revenues from mineral resources have experienced a sharp increase from 621 billion rubles in 2020 to 815 billion rubles in 2021, an increase of 31 percent, they have faded from the increase in the estimated price of herbal fuel production from 4. 7 trillion rubles in 2020 to 17 trillion rubles in 2021.
It’s unclear why costs and tax revenues have diverged so much. This is possibly due to the violent intra-year value fluctuations of those years and the lags between production and tax collection.
Export tasks apply to foreign sales of crude oil, herbal fuel and petroleum products (crude oil refining). Calculations with mechanisms similar to those in Table 2 (for the mining tax) are presented in Table 3 for export tasks.
While export tasks as a percentage of price have remained strong for herbal gas, they have declined particularly for crude oil and petroleum products. This is in line with the depreciation of the ruble and the planned six-year elimination of crude export tasks. oil and subtle products that started in 2019.
For Table 3 Russia’s Mineral Export Duty Revenue and Related Statistics, 2006-2021, here.
Before the invasion of Ukraine, the gap between the price of Ural oil and the price of Brent was small. But due to official restrictions and self-sanctions, Russian crude has been trading since Feb. 24 at a significant reduction in crude from the rest. of the world. (This has been a boon for China and India, which continue to import from Russia. )
Figure 3 shows that the reimbursement in May was around 32%. Therefore, the values of Brent and West Texas Intermediate, cited, are no longer smart signs of the strength of Russian oil tax revenues. The much lower value of the Urals is the most productive guide.
Since the invasion, the ruble’s exchange rate against the dollar has fluctuated greatly. First of all, as expected, the ruble depreciated sharply. Then, because the Bank of Russia raised interest rates and imposed restrictions on currency conversion, the currency appreciated. Before the invasion, a dollar charged about 75 rubles.
Today, after the corrective measures taken through the Bank of Russia, the ruble is valued at 50-60 rubles per dollar. The ruble is more powerful than before the invasion. If this point is maintained (if everything else is equivalent), Russia’s oil and fuel tax revenues for the rest of the year will decrease from pre-invasion points.
No one knows if, when and to what extent Russia will transfer its source of oil and fuel to Europe. No one knows if, when and to what extent Western countries will be able to ask for or the price they will pay for Russian oil and fuel.
Recessions around the world caused by a resurgence of COVID-19 or by a tightening of financial policy may only boost demand and prices. On the other hand, natural disasters, abnormally high summer temperatures, or abnormally low winter temperatures can push up prices. .
In the short term, the outlook for Russia’s oil and tax revenues is highly uncertain. Traditional energy resources: Russian oil and fuel demand and costs are expected to trend downward.
In the long run, the long term is bleaker for Russian oil and fuel revenues and for the Russian economy, due to a lack of investment in the oil and fuel sector, sanctions that deny (or at least hinder) Western generation and capital, the continued maturation of chosen energy sources, and a declining and aging Russian population.
In the meantime, to give us a review of Russian tax revenues on oil and fuel, based on the facts and trends discussed in this article, we can recommend keeping an eye on the value of Brent crude, the differential between the value of Ural and Brent oil, the ruble-dollar exchange rate and the evolution of the value of vegetable fuel that do not correlate with oil values.