Flaws in the New Sliding Scale for the Oil Export Duty

What was bound to happen has happened: the export customs duty (ECD) has been linked to the oil price. As usual, though, the execution is somewhat ambiguous.

First, the price for customs purposes is defined as the average of the Brent and Urals prices over the period from the 20th of the month two months earlier to the 20th of the month preceding the month in which the export customs duties apply. In other words, the price for March will be the average from December 20 to February 20, 2016. So on February 20 I will already know the March duty, and that will let me either speed up shipments or push them into March to optimize the duty. All exporters will therefore engage in optimization, and the budget will suffer. Of course, the aim was to smooth out oil price swings, but the averaging period is too long. In my view, it would have been better to take the average over the month preceding the export declaration date. That would leave little room for optimization, since the average price will barely move within a few days.

Second, the oil price scale is quite strange. Up to $25, there is no duty; from $25 to $30, the duty is $10; from $30 to $35, it is $20; and from $35 upward, the duty always equals the lower bound of the range, that is, $35 for $35–40, $40 for $40–45, and so on. As a result, within each $5 band, the burden at the bottom of the band is higher than at the top. Say, it is more profitable for me to sell at $39 than at $41, because the duties will differ. And since the duties are known in advance, this again creates room for optimization.

It would have been more logical to set a percentage rate, for example 14.3%, and fix it.

Then there would have been no need to draw up all these prices and rates. They could simply have set a zero rate up to $25 and 14.3% above that.

Third, it is unclear why the price is fixed per barrel (volume) while the customs rate is set per ton (mass). Consequently, the denser the oil, the more ECD its exporter pays, measured as a percentage of the sales price.

Those, roughly, are the shortcomings of the new ECD system. The intention was to do better, but the result is the usual one. Still, at least something has been done, and for that we can be thankful.

And one more paradox, noticed by Karina Arakelyan: the order was drawn up on February 17, 2016, registered on February 24, 2016, and took effect on March 5, 2016, yet it applies to relations that arose from February 1, 2016.