Page 44 - RusRPTJune18

increased. This comes as little surprise as authorities aim to increase social spending. Without structural changes to the budget, the funds must come from tax revenue. The government is happy for wealthy oil companies to pay the costs.
Russian government is considering hiking the VAT rate from 18% to 20%
as part of the across-the-board effort to scrap together funds for President's Vladimir Putin's six-year RUB8 trillion spending package , Vedomosti daily said on May 28 citing unnamed sources in the government. Reportedly VAT hike, together with lifting discounted VAT rates of 10%, will bring in an estimated extra RUB2 trillion through to 2024. Another RUB2 trillion could be raised in another painful measure targeting consumers: a long-postponed increase of the retirement age . Previous reports suggested that the remaining missing RUB4 trillion will be raised from approving the oil and gas industry tax manoeuvred (bringing RUB1 trillion), while RUB3 trillion would be borrowed domestically and abroad for the special infrastructure fund to be established in 2019 . However, some of the decisions could still be revised, sources told Vedomosti . Analysts surveyed by the daily agree that while the mulled VAT hike to 20% is not as painful as previously discussed increase to 22%, the burden will be pushed on consumers that have been squeezed considerably since 2014 and have only recently saw a recovery in incomes. On the production side, competitive industries such as retail and consumer services will be most sensitive to VAT changes, while the domestic manufacturers are expected to be impacted harder than export-oriented commodity producers. Alfa Bank estimated that increasing VAT would translate into consumer prices increase of 0.8-1pp, which currently is not seen as critical as inflation remains record-low.
Russia's President Vladimir Putin has approved the completion of the so-called "oil tax manoeuvre" at the end of April, Vedomosti daily reported on May 23. The fiscal reform in the oil and gas sector suggests full cancellation of the export duty tax by 2024, and its replacement with mineral extraction tax (MET). "Russian oil companies are currently paying two major taxes, MET and export duty, but the latter's role has been reduced starting from 2015 on the back of an increasing MET rate," Aton Equity reminds on May 25. There have been debates within the government regarding further steps in this tax manoeuvring, with the Finance Ministry being the strongest advocate of the export duty's cancellation while facing fierce opposition from the oil companies' lobby and Energy Ministry. The Finance Ministry argued that the cancellation of the export duty by 2024 will still bring RUB1 trillion RUB1.6 trillion ($2.6bn) of additional revenues to the fiscal budget depending on the oil price. Approving the move might indicate that Kremlin will from on be more revenue-minded in light of the massive spending package signed by Putin upon his inauguration into the fourth term this month. Other signs of Kremlin being serious about implementing the so-called May Decree is the establishment of $50bn infrastructure spending fund as of 2019 announced at the St Petersburg Economic Forum. Still, Aton analysts "do not believe this [approving the oil tax manoeuvre] is the end of this lengthy story, and anticipate that the discussion between the ministries and oil companies will continue," with two important questions remaining to be addressed. "First, how the tax manoeuvring corresponds with the implementation of excess profit tax (EPT) in the oil sector that will start in 2019 with several pilot oil fields. Second, what kind of measures will be applied to oil producers in order to smooth out the negative effect of the export duty's cancellation on refining margins," Aton asks. The analysts remind that oil producers have been under severe pressure
44 RUSSIA Country Report June 2018 www.intellinews.com