MOSCOW (Reuters) – Russia found a source of budget replenishment in raising taxes for a number of industries – from metallurgy to the tobacco industry – and revising privileges for the oil industry, which should bring an additional $ 4.5 billion a year to the treasury.
The Ministry of Finance, in an attempt to return to a budgetary spending rule in 2022, is looking for ways to increase budget revenues, which are expected to be in deficit over the next three years, amid low oil prices and the economic fallout from the coronavirus pandemic.
The government of the Russian Federation approved on Wednesday an increase from next year in fees for the extraction of minerals for metallurgy and fertilizers by 3.5 times, an increase in the excise tax on tobacco by 20%, as well as a revision of tax incentives for depleted oil fields, the production of extra-viscous oil and export duties for mature deposits, said Finance Minister Anton Siluanov.
The tax changes will make it possible to receive an additional 336 billion rubles a year, including from the MET for metallurgists and fertilizers – 56 billion rubles, tobacco – 70 billion rubles and revision of oil benefits – about 210 billion rubles.
“When we say that we need to find resources for the anti-crisis, for Covid, for national projects and the message (of the president), it's not just that we took it this way, poked our noses and imposed an imposition on oil workers and companies that are engaged in the extraction of multicomponent ores. decreased significantly, almost under 1 trillion rubles. This is a whole range of solutions – on taxes, on cost optimization. What is called a string from all measures in order to balance the budget, “- said the Minister of Finance Anton Siluanov.
The Ministry of Finance is acting in accordance with the circumstances that have developed as a result of the pandemic and the global economic crisis, said the press secretary of the Russian President Dmitry Peskov earlier on Wednesday.
All sectors other than oil and gas should help the budget, Prime Minister Mikhail Mishustin, who previously headed the tax service, announced at a government meeting.
“When it is difficult, everyone should take part in solving the problems facing the country, before the people. This is our deliberate policy,” he said.
Siluanov called the level of tax exemptions for the extraction of multicomponent ores one of the lowest. The rental rate in the mining sector will not affect the production of diamonds, gold, and coal.
“We are trying to bring some justice here, on the one hand, and on the other, of course, these are additional resources for the budget, which are primarily used to implement anti-crisis plans and the fight against coronavirus,” Siluanov said.
“It requires a lot of money. Yes, indeed, we are inviting parts of the commodities sector to participate in the fight against covid infection.”
The growth of taxes in the mining and metallurgical industry may affect Norilsk Nickel (MCX: GMKN), Rusal (MCX: RUAL), NLMK (MCX: NLMK), Severstal (MCX: CHMF), Phosagro (MCX: PHOR), Eurochem and others.
The decision to raise the MET may be negative for the entire sector, VTB Capital analysts wrote.
The metals industry and some officials have already expressed concerns about the growing tax burden amid the economy and market weakened by the coronavirus pandemic.
The decision for the mining industry turned out to be pretty quick. The Kommersant newspaper reported on Wednesday that such amendments are being prepared, citing sources, noting that the amendments were being prepared almost in secret.
Industry officials expected to discuss the idea with the Ministry of Industry and Trade on Wednesday and with Siluanov on Thursday, sources told Reuters.
Siluanov confirmed plans to discuss the innovations on Thursday at a meeting with companies including Norilsk Nickel, adding that they have already been approved by the government and the bill will soon go to the State Duma.
Company representatives did not provide comments or declined to comment on the topic.
The shares of the main companies in the sector have been declining all day and are in the red by the evening.
PLUS INCOME, MINUS INVESTMENT
The changes, if approved, will cost mining companies 90 billion rubles of additional workload per year and may lead to a reduction in investment and production in the industry, as well as to an increase in “social tension in single-industry towns,” Viktor Yevtukhov, Deputy Minister of Industry and Trade, wrote to Deputy Prime Minister Dmitry Grigorenko, asking for a separate meeting on this topic.
Reuters has a copy of the letter.
Evtukhov also writes that the growth of the severance tax proposed by the Ministry of Finance affects the production of strategically important rare earth metals, the extraction tax for which has been almost halved since the beginning of this year for the development of the industry.
“The introduction of an additional coefficient will lead to the destruction of the system being built to support the strategically important industry for the production of rare and rare earth metals,” the letter says.
Investment risks and a decrease in the competitiveness of export products in a weak market, if a decision is made, were also warned by the merger of Russian Steel, the lobby of Russian steelmakers.
“In the context of a worsening situation in connection with the coronavirus pandemic, this financial” burden “may serve not only to reduce the competitiveness of the mining, metallurgical and manufacturing industries, but also lead to the risks of stopping enterprises,” the lobby said in a letter, a copy of which is available to Reuters.
The increase in the mineral extraction tax will most of all affect Norilsk Nickel and Rusal, VTB (MCX: VTBR) analysts wrote, who estimate that the impact on the EBITDA of these companies will be from 5 to 6% in 2021.
The decision could destabilize the situation in the industry and undermine the investment climate in Russia, BCS analysts say.
(Daria Korsunskaya, Anastasia Lyrchikova, Polina Devitt, Gleb Stolyarov, Maria Kiseleva. Edited by Anastasia Teterevleva, Dmitry Antonov and Maxim Rodionov)