Oil companies want the government to calculate taxes based on actual export prices

According to Kenzhebek Ibrashev, director general of the KazEnergy association, all taxes related to oil production and exports must be based on actual oil prices, not on data from foreign price assessment agencies.

«Taxes for oil production and exports must be calculated based on actual selling price with transfer pricing taken into account,» he said during a discussion on tax issues with the Senate, the upper house of the parliament.

As Ibrashev noted, oil exporters have been seriously affected by fluctuations in oil prices as the taxes are calculated based on information from price assessment agencies, not real revenue, which is often much lower than what the agencies said.

«Last year, against the backdrop of the war, the difference between prices for Brent and the Russian UIrals reached $35 per barrel. At the same time, Kazakhstani oil companies that exported cheaper Urals were forced to pay taxes based on the higher price of Brent. This situation slightly improved when Kazakhstani companies started using a new oil brand called Kebco. However, pricing information published by price assessment agencies still doesn’t reflect the real market situation. We need to reduce our national tax system’s dependence on foreign price assessment agencies and switch to actual prices,» the head of the association said.

Kazakhstan used to export the main part of its oil under the Russian brand Urals, which has gotten significantly cheaper after the full-scale Russian invasion of Ukraine. This is why Kazakhstan started exporting oil under its new brand Kebco last year.

Ibrashev also pointed out that his proposal for a new approach to taxation in the oil and gas industry doesn’t mean that the government has to reform all its tax bodies that have worked this way for many years. The point is to adjust tax rates so that the state budget doesn’t lose money.

He also noted that oil companies are expecting that the government will soften its fiscal approach to gas flaring as it is a necessary part of the exploration process.

«The government imposes higher taxes directly linked to the global price on companies that flare their gas. However, those companies have managed to minimize the amount of gas they need to flare, which happens only after receiving the consent of the Ministry of Energy. Any over limits are punished with fines,» he said.

Ibrashev suggests that the flared gas be charged with taxes based on prime cost, not a global price because producers have to burn that gas during exploration and pilot operation at a field and by doing so, they use it for their own needs.

He also believes that the government has to think about depleted fields as the industry needs a mechanism stimulating oil companies to reinvest their revenue in new technologies to maintain the output, keep salaries for personnel and make a field live longer.

In turn, Minister of National Economy Alibek Kuantyrov said that sharp fluctuations in the oil process are just a temporary event.

«Concerning taxation based on actual oil prices, we believe that this is just a temporary event caused by the geopolitical situation. We know this problem and we are ready to talk about it,» he underlined.

At the same time, the minister promised to discuss all other issues including flared gas taxation in the course of the preparation of a new tax code.