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RUSSIA'S INDUSTRY AND ENERGY MINISTER PROPOSES CHANGES IN TAX LEGISLATION TO HOLD BACK PETROLEUM PRODUCT PRICES

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MOSCOW, May 25 (RIA Novosti) - Viktor Khristenko, Russia's industry and energy minister, put forward a proposal to amend the country's tax legislation in order to stem the rise in petroleum product prices on the domestic market.

Addressing the State Duma (the Russian parliament's lower chamber), the minister spoke in favor of the existing procedure for pegging the severance tax only to oil exports.

"In supplying oil to the domestic market, a specific basic rate adjusted for inflation should be used," he said.

Viktor Khristenko also proposed cuts in excises on petroleum products. In his opinion, "the higher the price of the Urals oil, the lower the excise duty on the domestic market should be."

The minister pointed out that cuts in excise duties would have no tangible effect on budget revenues, with export duties and severance tax being their main sources.

Viktor Khristenko proposed seasonal export duties on petroleum products. "In particular, the tax pressure could be weakened in the summer season," he said.

In the minister's opinion, the rate of export duty on crude is unprecedentedly high. "Since June 1, 2006, export duty on crude will equal $136 per ton. Considering that several years ago, in 1999, the price of a ton of oil was lower than the present export duty rate by 2.5 times, this rate is exceptionally high."

Viktor Khristenko recalled that the decision to establish new export duty rates was taken by the government on May 18, "on the basis of a thorough examination of the market situation."

In order to stimulate the development of the oil-refining sector in the country, the minister made a proposal to abolish import duties on the equipment for oil refineries.

He also favors the abolition of excises for petrochemical enterprises.

The minister pointed out that the government took the line of shifting the main tax burden from the oil-processing sector onto the oil-producing one.

At the same time, he ruled out the possibility of a deficit of motor fuel in the country. According to his data, as of May 25, Russia's reserves of light petroleum products amount to 1.4 million tons. Petroleum product supplies over the January-May period of this year increased as against the respective 2004 period: of motor gasoline by 11.5%, and of diesel fuel by nearly 19%.

The minister also reported that petroleum product supplies to agricultural producers had tangibly increased over the past several months. In his words, a seasonal surge in prices of light petroleum products "occurs against the background of a rise in their production, supplies and reserves, as compared to last year's indicators."

The minister warned that the excessive use of administrative measures in the sphere of fuel tariffs regulation could lead to fuel deficits. He mentioned Ukraine in this connection which tried unsuccessfully to regulate fuel prices by administrative methods.

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