Tax Allowances in Petroleum Industry Assignment

Tax Allowances in Petroleum Industry - Assignment Example Earlier experiences from such attempts by other nations have been considered for comparative analysis of the factors. The paper comprises of four parts. Azerbaijan and Kazakhstan are two states that broke away from the Russian federation after the fall of the former Soviet Union. They are both members of the CIS and have immense wealth of mineral oil and crude deposits. Together they comprise more than a third of the CIS's total energy reserves. However they are both classified as nascent developing states and as nascent states have it, the political economy of both countries suffer from huge administrative lethargy. Both countries bet heavily of the oil reserves and are striving to attract foreign investments in these sectors. Azerbaijan has made great leaps and has overtaken Kazakhstan in terms of volumetric performance of the oil sector. But as economists point out, its fiscal policies lack the complexity to accommodate the sudden surge in revenue. Hence their revenue from oil will peak towards the end of the decade and then stabilise on a relatively low rate of declaration. Kazakhstan on the other hand has seen very little dramatic... It is in these contexts that the fiscal reforms of the countries have to be considered as far as reforms in the oil sector taxation will be studied. 1. Overview of the tax systems in Kazakhstan and Azerbaijan Oil Industry Tax system in Kazakhstan oil industry The Taxation system in Kazakhstan is the most renowned model in the erstwhile Soviet Union. The Tax Code of 2002 implied an "international model of taxation, based on the principles of equity, economic neutrality and simplicity". During the year 1996, a Treaty on the Avoidance of Double Taxation was signed between United States and Kazakhstan. Kazakhstan has since signed 36 such agreements with various foreign governments until today1. The four main laws which govern the petroleum sector in Kazakhstan are: The Subsurface Law The Petroleum Law The Tax Code (2001) Law on Production Sharing Agreement for the sake of offshore oil dealings (zakhstan Oil and Gas Tax Guide) Taxation on Oil and Gas The new tax code that came in to force wef. 1st January 2002 has remarkably decreased the number of taxed sectors from a previous 53 to 36. The new code reflected better insight and clarity in the tax regime rather than the previous clumsy one. These new taxes were more detailed, and comprehensive. With this emerged a new framework on long term taxation issues in the petroleum industry and for the first time, long term financial planning and better feasibility studies could be effectively done by investors in the sector. The improved Tax Code which came in to effect from January 1, 2005 brought changes in tax regulations and lowered the economic load of investors considerably. The chief tax heads for companies dealing in the oil and gas sector are Corporate Income Tax, Value