IMF to help Ukraine design optimal resource taxation

Experts of the IMF will visit Ukraine on Nov. 4 to help design an optimal model for taxing resources extraction, said Deputy Finance Minister Denys Fudashkin, as reported by the Interfax news agency on Oct. 30. The experts will spend two weeks in Ukraine for “a more detailed discussion of resource extraction taxation,” Fudashkin said. The review will focus on the taxation of iron ore and hydrocarbons, he added.

Recall, Ukraine increased gas production taxes twice this year, boosting the rates in April to 28% from 25% of the import price and to 55% of the domestic price for August-December 2014. The government hiked the production tax for iron ore nearly 5x to 5% of its market price since April and then to 8% of its market price since August.

Alexander Paraschiy: The initiative to invite international experts is encouraging in and of itself as it demonstrates the desire of the Ukrainian government to use the best practices in setting the taxation regime and to reduce the threats of corporate lobbying interests or state officials imposing an excessively high tax burden.

Thus far, the news looks neutral for Ukrainian iron ore producers like Metinvest (METINV) and Ferrexpo (FXPO LN), whose production taxes broadly correspond to levels in peer countries. It looks slightly encouraging for Ukraine’s natural gas producers, including JKX Oil & Gas (JKX LN), Serinus Energy (SEN PW) and Regal Petroleum (RPT LN), for whom there was a high risk that the interim high production taxes would be prolonged after their termination in end-2014.