Gas production declined despite tax breaks for gas companies

Due to the reduction of tax rates for natural gas by 3 times, for oil and gas condensate – by 2 times, the state budget of Uzbekistan did not receive 538.1 billion soums of tax for the use of subsoil in 2022. At the same time, gas production fell by 4%, gas condensate – by 2.8%. Oil production increased by 1.8%. This was reported by Gazeta.Uz.

Receipts from tax on the use of subsoil in 2022 decreased by 1.92 trillion soums (169.5 million US dollars), or by 12.2%. This follows from the report on the execution of state budget revenues, published by the Ministry of Economy and Finance of Uzbekistan.

Over the past year, the state budget received 13.89 trillion soums from this tax, 15.81 trillion soums in 2021, and 16.4 trillion soums in 2020. At the same time, the amount received is more than the forecast for the beginning of 2022, which was 13.76 trillion soums.

The bulk of the proceeds from the subsoil use tax, or 63.7%, came from gold and copper mining enterprises with a state share.

The decrease in tax revenues is due to the unification and reduction of tax rates for certain types of minerals. This happened despite the increase in the number of payers of this tax by 263, or from 1904 to 2167.
Last year, tax rates for natural gas were reduced from 30% to 10%, for oil and gas condensate – from 20% to 10%. As a result of this, as well as due to the introduction of the Netback mechanism in 2022, when determining the tax base, 538.1 billion soums remained at the disposal of taxpayers, the report says.

For enterprises with a predominant state share, tax rates are set on a large scale:

• Navoi Mining and Metallurgical Combine (NMMC), Almalyk Mining and Metallurgical Combine (AMMC): 10% for gold and 15% for palladium, silver and copper;
• Uzbekneftegaz: 15% – for oil, natural gas and gas condensate;

In addition, for enterprises with a predominant state share that produce hydrocarbons, precious, non-ferrous, rare and radioactive metals (NMMC, AGMK and Uzbekneftegaz), these rates are applied to the subsoil area, the production of which began after January 1, 2022. By decision of the President, they may be subject to increased tax rates for the use of subsoil.

When calculating the tax on property of legal entities, the tax base is reduced by the average annual cost of new oil and gas wells in the first two years, starting from the month they are put into operation. Upon expiration of this tax benefit, these new wells will be subject to a tax rate reduced by 50% of the established rate for three years.

Gas production in 2022 fell by 4%, or from 53.8 billion to 51.6 billion cubic meters, gas condensate – by 2.8%, to 1.29 million tons, according to the Agency of Statistics. Oil production increased slightly – from 774 thousand to 787.8 thousand tons, or by 1.8%.

In 2022, Uzbekistan exported gas worth $910.9 million. Most of the supplies went to China. The Chinese side reported the import of Uzbek gas for $1.07 billion, which is $159.5 million, or 18.2%, more than the data reported by Uzbekistan. The Statistics Agency explained the reasons for the discrepancies by the peculiarities of the assessment of the customs value of goods and the difference in the time of accounting for goods. At the same time, Uzbekistan imported gas from Turkmenistan for $281.9 million (+82.5%).

In addition, tax rates were reduced:

• for precious and non-ferrous metals – from 10% to 7%, and for gold for enterprises with a predominant state share – from 15% to 10%, as a result of this, gold receipts decreased by 2.8 trillion soums;
• for radioactive metals, rare and rare earth elements – from 10% to 8%, for tungsten – from 10.4% to 2.7%;
• for non-metallic building materials – an average of 2 times, as a result, the amount of income from them decreased by 55 billion soums, of which 45 billion soums accounted for sand and gravel, despite an increase in its production by 2.5 million tons.

The volume of limestone production by factories using coal in the cement production process has increased by almost 10 times. With a 2-fold decrease in the tax rate on limestone for cement production from 2022, the amount of tax revenues increased 4.2 times compared to 2021 and amounted to 34.1 billion soums.

The rest of the taxpayers extracting limestone for the production of cement paid 246.3 billion soums of tax for subsoil use to the budget, which is 304.1 billion soums (or 2.2 times) less compared to 2021. This is due to a decrease in the volume of limestone production for cement production by 1.3 million tons and the tax rate for this type of mineral by 2 times, canceled in the Ministry of Economy and Finance.