MinFin expects 250 bln rubles in extra taxes from mining in 2022; mineral extraction tax hike, progressive profit tax being discussed
17 September 2021 00:00:00
© Interfax

Russia's Finance Ministry expects about an additional 250 billion rubles in tax revenues from mining companies in 2022, one of the participants in a meeting that First Deputy Prime Minister Andrei Belousov held with the shareholders and CEOs of leading miners on Wednesday told Interfax.

Finance Minister Anton "Siluanov mentioned 250 [billion rubles], but the figure was not discussed, since the discussion centered more around the mechanisms," the source said. The Finance Ministry has not yet responded to Interfax's questions.

The source said officials indicated at the meeting that the "figure has already been counted in the budget," meaning the draft federal budget for 2022 and the planning period of 2023-2024 that will soon be considered by the government before being submitted to the State Duma.

The rental coefficient of 3.5 on the mineral extraction tax (MET) was introduced in a similar way a year ago. At that time, the Finance Ministry first set the target for budget revenues at a little over 50 billion rubles and discussions with businesses proceeded from there.

Now the tax burden might be increased further not only by raising the MET, but also through a progressive profit tax scale, several sources familiar with the discussions told Interfax. The proposals discussed on Wednesday come down to introducing formula coefficients to link the profit tax rate to dividend payments and capital expenditures - the higher the dividends and lower the capex, the higher the tax.

However, a MET hike remains on the table, both as an independent option for collecting windfall profits and in combination with other mechanisms, the sources said. Officials mentioned two options for the MET: raising the rental coefficient while continuing to link the MET to expenditures on mining or linking the MET to the whole company's turnover. Businesses criticized the latter option, saying it "kills" the essence of the MET as a rental payment and disincentivizes development of mining capacity, the sources said.

The Finance Ministry has already detailed proposals to change the approach to the MET and they will purportedly be discussed with businesses on Thursday, one source said. This refers to linking the tax to the market situation, meaning exchange prices for ore or concentrate. In that case, the existing rental coefficient will be eliminated.

The possibility of a floating MET for the mining industry linked to the world market situation for its end products was previously mentioned by Deputy Russian Finance Minister Alexei Sazanov.

"Switch to some link of the MET rate, mainly to changes in world prices for the end products of metallurgical production, fertilizer producers and others. In other words, make a floating MET linked to the world market situation. This is a fairly complex issue, we're thinking [about how to implement it]," Sazanov said in late August. For metal companies, the floating MET would replace export duties that are in effect until the end of 2021.

Another idea floated at the meeting with Belousov on Wednesday was a progressive tax on dividends, one source said.

Businesses prefer to pay a one-time extra tax on profit to the proposed option of linking the tax rate to dividends and capex, one participant in the meeting told Interfax. "The subject was discussed in general terms as an incentive to invest. But in the course of the discussion, businesses showed that this plan can work only in marginal cases, where dividends exceed capital severalfold," the source said.

Furthermore, the shareholders of the largest companies use dividends on their stakes to finance projects in other sectors, so it would be difficult to distinguish between relevant and irrelevant investment. "Therefore, businesses believe that it's better to just raise the profit tax for one year if there's a real desire to collect windfall profits from the favorable price situation, and then already sort out various schemes for adjusting the tax system," the source said.

This one-time profit tax increase could also be differentiated by sector, for example, altogether exempting small and medium businesses or companies with overall tax payments below a certain threshold, the source said, explaining the counterproposal from businesses.

The results of the meeting will be reported to Prime Minister Mikhail Mishustin, participants in the meeting told Interfax. This was confirmed officially by steelmaker Severstal. Also on Thursday, the tax authorities and companies will discuss the parameters of the change in tax burden at a meeting at the Finance Ministry, one source said.

Severstal, whose principal beneficiary Alexei Mordashov heads industry association Russian Steel, commented on the meeting on behalf of businesses. It welcomed the dialog itself but refrained from assessing its results.

"There was an in-depth, constructive conversation between representatives of big private business and First Deputy Prime Minister Andrei Belousov and a number of ministers. It appears that the representatives of the government listened to us attentively. Time will soon tell if they heard us. But the fact that a dialog has finally taken place is certainly a good thing. For this, thank you to Prime Minister Mikhail Mishustin, who gave instructions to hold this meeting. Its results, with the corresponding proposals will be reported to Mishustin by Belousov's group tomorrow. Then we'll see what the results will be for businesses," a spokesman for Severstal (MOEX: CHMF) told reporters on Wednesday.

The Russian Union of Industrialists and Entrepreneurs (RSPP), whose head Alexander Shokhin attended the meeting, declined to comment on its results.

A year ago, the government introduced a rental coefficient of 3.5 on the MET rate for a number of solid mineral resources, including potassium salts (the base rate is 3.8%); apatite-nepheline, apatite and phosphate ores (4%); ferrous and rare metal ores (4.8%); natural salts, pure sodium chloride, nepheline and bauxite (5.5%); commercial nonferrous metal ore (8%); and multi-component complex ore containing copper, nickel and platinum that is mined in Krasnoyarsk Territory (currently 730 rubles/tonne). Projects being carried out through investment protection and promotion agreements were exempted from the tax hike.