UPDATE 2-Russia plans more oil sector tax cuts for 2010

(Updates with details, FACTBOX link)

By Gleb Bryanski

MOSCOW, Sept 19 (Reuters) - Russia will propose more tax cuts for the oil industry this year and implement them in 2010, Kremlin economic advisor Arkady Dvorkovich said on Friday, giving only sketchy details of the plan.

President Dmitry Medvedev met top officials on Thursday to discuss tax reform after a debate between a pro-growth camp, which wanted a major cut in value-added tax (VAT), and fiscal hawks, led by Finance Minister Alexei Kudrin.

The two sides agreed to a compromise that postponed a decision on VAT until 2009 and tasked the government with looking instead at cutting taxes in the oil sector.

"In effect... a decision was made on lowering the tax burden for the oil sector," Dvorkovich told a news conference. He said the proposal would be drawn up this year and applied from 2010.

For a FACTBOX on Russia's tax initiatives, please, click [ID:nLJ341067]. Dvorkovich said discussions were continuing over whether Russia would further cut oil export duty or reduce the mineral extraction tax, which together provide the same amount of budget revenues as the VAT.

Russia said on Thursday it would slash oil export duty from Oct. 1 to allow oil firms hit by a weaker crude price to save $5.5 billion. That would boost their shares and money market liquidity.

Russia's oil-dominated stock market last saw a major rally when the government announced $4 billion worth of tax cuts for the oil industry in March.

The new measures, which would supplement those cuts, are part of Russia's $130 billion rescue package for the market and along with promises of even more tax cuts, they drove a recovery in the stock market on Friday .

The tax initiatives, which include a more favourable depreciation regime from 2010 allowing the firms to write 30 percent of new equipment costs off their tax base, will cost the state a maximum 0.5 percent of annual GDP, Dvorkovich said.

Kudrin, who also oversees the tax service, will receive the power to grant companies the right to restructure their back tax claims and postpone payments.

Discussions over the social security tax on employers, which Kudrin wants to raise to fund Russia's pension system, will continue as reforms for both the pension and healthcare systems are still being drafted.

"We decided the overall tax burden will not go up," Dvorkovich said. (Reporting by Gleb Bryanski)