VietsovPetro drilled by tax hike

Economic engine room: VietsovPetro’s tax rise will help fill state coffers

Revision of the cooperational agreement between Russia and Vietnam in the exploration and exploitation of oil and gas last week in Hanoi will provide the state with a hefty windfall
Accordingly, the corporate income tax on VietsovPetro’s joint-venture will increase by 10 per cent to 50 per cent, while the five per cent tax on foreign profit remittance will be removed.
Truong Chi Trung, vice minister of finance, said the adjustment to the corporate income tax on VietsovPetro was necessary to create a level playing field.
“We must ensure fairness among foreign investors involved in oil and gas exploitation and exploration,” said Trung.
The common corporate income tax level applied to other investors looking to explore and exploit oil and gas reserves currently sits at 50 per cent.
Experts believe the tax increase could bring the state budget an additional $200 million from the joint-venture in 2006; however, the removal of foreign profit remittance tax will help save nearly $100 million for the joint-venture.
Earlier this month, VietsovPetro claimed to have already successfully exploited 150 million tonnes of crude oil and channeled ashore 15 billion cubic metres of gas.
It is reported that VietsovPetro will contribute around VND50 trillion ($3.3 billion) to the state budget this year, the biggest-ever supplement to date by any joint-venture.
Contributions by the joint-venture to the state budget account for about 22-25 per cent of the country’s tax revenue.
Comprising Russia’s Zarubezhneft Co. and Vietnam’s Petrovietnam General Company, the Vietsovpetro has resulted in the most effective bilateral investment project for the exploration and production of oil and gas on the South Vietnamese shelf.
Established in 1981, Vietsovpetro has a chartered capital of $1.5 billion, split according to a 50-50 arrangement. Scheduled for joint operation up to 2011, the company produces 95 per cent of Vietnam’s oil output and more than half of the country’s hard currency revenue.