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Tax pressure on private oil producers hits 64% limit — PetroMining Association

The annual tax burden of private oil-producing organizations (OPOs) for 2021-2022 increased by 12.6% — from 51.5% to 64.1%, according to an analysis made by the PetroMining Association. Such high taxation is one of the key factors affecting the investment attractiveness of the industry.
"The international method based on EBITDA was applied to determine the annual tax burden. An important point: among other sectors of the country's economy, this is the highest level of tax payment," points Jaromir Rabai, Executive Director of the PetroMining Association.
Unlike other sectors of the economy like agriculture, machine building, trade, etc., the oil industry, in accordance with the Tax Code of the RK, in addition to the generally established taxes, also pays three special taxes: mineral extraction tax, rent tax on exports, excess profit tax.
"Essentially, only export oil is taxed at a double rate, as in addition to the customs duty, an export rent tax is also paid," the PetroMining Association specifies.
The increase in the tax burden diminishes investor interest in the oil business. Profit generation becomes more complex due to higher costs, including production costs, depreciation, amortization, taxes, logistics, salaries and other administrative expenses.
"As known, the majority of oil fields in Kazakhstan are going through the third or fourth stage of maturity. Over the last 5 years, production by OPOs has fallen by 17% or 3.6 million tons of oil in absolute terms," stresses Jaromir Rabai, Executive Director of the PetroMining Association.
Thus, the circumstances in the domestic market for crude oil and petroleum products reveal two main issues. First, OPOs are under-receiving at least US$ 100 per ton of profitability when selling oil on the domestic market due to the disparity of oil prices compared to exports.

Secondly, the OPOs elements in the chain of production and wholesale of fuel and lubricants receive from US$ 350 to 480 per ton of the product (AI-92 and diesel fuel) due to the regulation of the wholesale price and the impossibility of exporting these products. Both of these factors can be considered as a form of hidden tax aimed at cheapening the final price, which is "paid" primarily by OPOs.
"All members of our PetroMining Association, representing more than 50 oil-producing organizations (OPOs), are committed to social responsibility as investors. The position of oil-producing organizations is to maintain (not increase) tax liabilities at current levels when new tax legislation is adopted. Further tax rises may lead to critical consequences for a number of companies, putting them at risk of halting their operations," finalizes Jaromir Rabai, Executive Director of the PetroMining Association.
2023-11-15 16:40