In a move to encourage the exploration for crude, Russia’s State Duma voted for tax cuts that will benefit the country’s oil producers. The decision came during a second reading of the tax bill on Wednesday.

The changes are designed to counteract increasing costs oil companies have seen in recent months that have resulted in a decline in output. Russia, the world’s second-largest exporter of oil, enjoyed a 10-year boom in the oil industry prior to stagnant growth that began in January.

Prime Minister Vladimir Putin has said in the past he supports tax changes that will ease the industry’s burden. Putin has also proposed to add fields in the Northern Yamal Nenets region and the Arctic Seas to the list of fields affected by the tax bill.

According to Moscow’s HSBC Bank Chief Economist, Alexander Morozov, oil tax cuts are vital to the country’s success. “The Russian economy still heavily depends on the oil and gas sector,” he said.

Morozov echoes a recent statement made by Russia’s Economic Development Minister Elivra Nabiullina who said, the country’s oil industry is “the foundation of the Russian economy, the foundation for its competitiveness.” Morozov also stated that a minor stagnation in the industry is alarming.

Per the bill, the oil extraction tax will increase from $9 a barrel to $15 a barrel. The bill also calls for the extension of “tax holidays” for new deposits the Arctic peninsula of Yamal, the Timan-Pechora region, the continental shelf, and the Azov and Caspian seas.

Tax holidays will be based upon the location of the field. For example, holidays would last up to 15 years, or until output hits 35 million tons of crude, for the Arctic region and Russia’s continental shelf. The Azov and Caspian seas, however, are extended tax holidays for up to 12 years or 10 million tons of oil. The onshore fields of the Yamal peninsula regions and northern Timan-Pechora would feature a tax holiday of 12 years or 15 million tons.

In addition, the new changes afford oil companies an exemption from the mineral extraction tax for certain oil fields.

Based on estimates provided by the Duma’s Budget and Taxes Committee, the country is estimated to lose $4.45 billion next year and $4.79 million in 2010 because of the mineral extraction tax changes.

Before the oil tax is passed, the bill must pass a third reading in the Duma. From there it will be sent to the Federation Council and onto President Dmitry Medvedev for final approval.