The Kremlin continues to be stretched by the Ukraine war, so Russia announced a windfall-tax on large companies. It is estimated to raise Rbs300bn (US$3.6bn) through its oligarchs.
A draft bill presented on Tuesday outlines the proposed levy. It will force Russian groups that make profits exceeding Rbs1bn per year to pay an annual tax of up to 10% of their gains.
A senior cabinet official said that the idea of the levy came from the companies, who realized they had made “gigantic profits” during the period and needed to be taxed properly.
The move is one of several measures taken to shore up Kremlin coffers following the fall in oil revenues due to western sanctions, and the surge in defence spending related to war that led to Russia accumulating a Rbs3.41tn deficit in the first six months of this year.
The new tax, which is not directly related to President Vladimir Putin’s invasion of Ukraine demonstrates the Russian state’s increasing control over business and economy.
After their share prices plummeted, Russia’s biggest metals, mining and chemical companies abandoned plans to impose a windfall tax similar to the one in 2018. This would have raised $7.5bn extra for social spending. But first deputy prime minister Andrei Belousov, the driving force behind both initiatives, claimed Russia’s oligarchs had volunteered to surrender their profits in a patriotic gesture.
In an interview with the Russian business paper RBC published on Tuesday, Belousov said: “I’ll let you in on a little secret: The idea for this Rbs300bn (about $US30bn) tax was not from the government but rather the business community.”
They are intelligent and well-informed. They know they will have huge profits in 2021 and 2022.
The plans were controversial among Russia’s wealthy oligarchs who spent months lobbying to weaken the measure.
“I don’t get it” . . “If you want money, raise taxes,” said one oligarch who is likely to be affected. “There’s a feeling [Putin] outwitted himself and everyone else once more.”
Analysts say that the metals and fertilizer industries are likely to be the hardest hit by the new tax. Russia started discussing this tax earlier this year, after western sanctions began to reduce the country’s revenue from oil exports.
Sberbank, the largest Russian lender and owned by the state, will be also affected by this new tax. Herman Gref, the chief executive of Sberbank, estimated that the bank could contribute Rbs10bn to the windfall taxes, which is more than 3% of the total tax revenue.
Although most Russian oligarchs face western sanctions, their agricultural and industrial conglomerates are exempt from restrictions due to their important role in global supply chain.
Timur Nigmatullin is an analyst with the Russian investment firm Finam. He said that he expects the windfall payments will be “opaque”, to outside observers, to minimize the risk of sanctions being imposed on companies for supporting the conflict.
In an attempt to avoid the situation, Anton Siluanov, Russia’s finance minister, said that Russia would use its extra revenues on payments for families who have children. These handouts were significantly reduced in Putin’s February State-of-the Union address.
Russia wants to reap the benefits of the commodities exports that were made before western sanctions took effect. These profits helped stabilize the Russian economy, but they haven’t been reflected fully in the public finances.
The oil and gas exporters who account for 45 percent of Russia’s income are already paying extra taxes to cover the shortfall. Gazprom, Russia’s gas monopoly paid out a $21bn one-time dividend last year despite record profits. It will pay Rbs1.8tn more over the next 3 years as a new tax.