Page 39 - UKRRptJun21

Out of this, the oil and gas sector accounted for the largest share, sending abroad nearly 27% of its total income, followed by the metals and mining sector and banks. Mishustin also singled out retail and logistics.
As followed by bne IntelliNews, while Russia managed to revise the double taxation treaties with Cyprus, Malta and Luxembourg (imposing 15% tax rate on dividend income and 20% tax rate on interest income), the Netherlands rejected the proposal, leading Russia to pull out of the treaty with that country this week.
"While there were no details on the new tax system [in Mishustin's report], we noted previously that the story on dividends could likely touch upon the metals and mining space, which pays out generous dividends and is held by private owners," Sova Capital analysts argue.
For example, Norilsk Nickel, Severstal, NLMK, Evraz and MMK should pay out more than RUB405bn this year to their major shareholders.
Sova analysts believe that companies are likely to retain their dividend policies of paying out 100% of free cash flow (FCF) and that any changes to the tax system will push majority owners to take a more active role in national infrastructure projects, leaving minority shareholders unaffected.
The analysts see the continuing revision of double taxation treaties "as sticking to a strategy of keeping profits onshore or promoting Russian domestic offshores.”
6.1.2 Budget dynamics - specific issues...
With world iron ore prices double the level of one year ago, President Zelenskiy defended a draft law to increase taxes on iron ore passed in mid-May. “The price is very high today,” he said at his press conference. “You can slightly increase budget revenues. I think it's fair.” Moving from a tax of 11-12% of iron ore as it come out of the ground, the new tax scale would range from 0.1% to 16% on iron concentrate and pellets ready for export. Using as a marker China’s price for one ton with 62% iron content, the tax would be 16% for shipments selling at over $180 a ton. With yesterday’s price at $210 a ton, iron has traded over $180 for the last month.
6.1.3 Budget dynamics - funding
IMF sees little progress in Ukraine’s commitments under SBA program.
More progress from the Ukrainian side “is needed to support completion of the first review” under the standby program with the IMF, the funds’ key spokesman Gerry Rice told a press briefing on May 6. According to Rice, the program aims at safeguarding medium term fiscal sustainability, preserving central bank independence, enhancing financial stability, tackling corruption and strengthening governance.
The IMF’s decision to distribute $650bn in Special Drawing Rights this summer is undermining arguments for free market changes in countries like Ukraine, Timothy Ash argues in an essay. He writes from London: “The hope was the looming debt service hump for Ukraine in Q3, when $3bn in external debt falls due, would concentrate minds in the Zelenskiy administration. But likely with $2.8bn in SDR allocations due in September now, I think there will be zero incentive on the part of the administration to do anything to meet the conditionality in the SBA [Stand-by Arrangement]. This
39 UKRAINE Country Report XXXX 2018 www.intellinews.com