Russia to introduce tax exemptions for Arctic port projects

Russian exempts Arctic ports from some taxes - Sabetta port. Credit: Sabetta Port Authority

The Russian government has submitted a draft law on tax amendments to stimulate exploration and production of oil and gas and infrastructure development in certain Arctic areas, according to a statement posted on the government’s website on 4 February.

The companies building new seaports in the Arctic stands to benefit a 0% income tax rate for the first 10 years of their operation, according to the draft law. Shipping companies operating in the region will also have no value added tax on shipments of export goods and icebreaker services, the government said.

Some major tax breaks have also been given to oil and gas projects, located inland and on the sea shelf. With the new tax incentives, the Arctic is expected to be the site of at least five major projects with estimated costs of RUB1.77 trillion (USD29 billion) over the next several years, Alexander Kozlov, minister for the Far East and Arctic said in the statement posted on the government’s website at the end of January.

The new laws will become the basis of a long-term Arctic development strategy until 2035, the ministry said in a separate statement. The strategy is expected to be finalized by the end of the first quarter of 2020.

The new tax breaks could help the USD4 billion, Indiga port construction project in the Arctic’s Nenets region, which includes terminals for coal, general cargo, timber, and potassium fertilizers. The construction of the port is expected to begin in 2021, and will begin operations some time in 2025.

The transhipment capacity of the Indiga port is estimated at 80 million tonnes per year. Additionally, expansion projects are being planned for the Sabetta and Murmanks seaports in the coming years.

New infrastructure is crucial to expand the cargo turnover of the Northern Sea Route (NSR) to 80 million tonnes by 2024. In 2018, 18 million tonnes travelled through the NSR — an 80% increase from 2017. In 2019, 26 million tonnes of cargo passed through the NSR, the Russian government estimated.