Crude Oil Export Customs Duties

By order №81, dated 17 February 2016 (hereinafter – the Order), the Minister of National Economy of the Republic of Kazakhstan approved a progressive scale of export customs duty (hereinafter – ECD) rates for crude oil, instead of a fixed rate. Though the order was issued on 25 February 2016, it covers relations starting 1 February 2016.

According to the Order, the ECD rates became attached to the global cost of “black gold” as of 1 March 2016. As the Minister put it, such an economic measure is due to the need to support state oil and gas sector. The main purpose is easing the tax burden on subsoil users who export oil from Kazakhstan.

Accordingly, adoption of the Order repealed order №405 dated 27 May 2015, which established a fixed ECD rate for oil in the amount of 40 USD per barrel regardless of world prices, the oil production cost, or the volume of its export.

The rules for calculating the size of the export customs duties rates for crude oil and products produced from oil (Annex 2 to the Order) regulate the procedure for calculating the size of ECD rates. Thus, the ECD rate is determined based on the average market price of URALS (MED) and BRENT (DTD) crude oil formed in the global market in the preceding period, which begins on the 20th day of the two months and before the 20th of the month preceding the month of application of export customs duties.

With respect to exported crude oil, as classified by the code EEU FEACN 2709 00 900 9, in the course of a month one of the export customs duties rates applies as provided for in Annex 1 to the said Rules, depending on the average market price of oil in the previous period. On the basis of the table contained in this annex, the scale of ECD rates starts with an average market price of 25 USD per barrel and reaches the price of 185 USD and above. The maximum ECD rate in this case is 236 USD per ton of oil.

If world oil prices fall below 25 USD per barrel, the ECD rate is zero. Therefore, ECD will not be payable by the exporter. With prices above 25 USD per barrel of oil, the ECD rate will be determined in accordance with the specified scale.

The experts tend to believe that these funds, made available to the oil companies by annulment of a fixed ECD rate payment and introduction of new “floating” rates, can be transferred to the geological exploration of oil fields and maintenance of the wells fund, which will lead to the benefit of the national economy. The other side of the coin is the expected shortfall in the state budget. In any case, the effectiveness of the ECD rates scale introduced by the Order is obvious and fairer.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please note that Kazakhstan is an emerging economy, and its legislation and legal system are in constant development. Should you have any questions or want to discuss matters addressed in this Client Update, please contact us.