Page 53 - RusRPTDec18

and the social sphere to “transform” the economy on top of the approximately RUB16 trillion Russia usually spends. For the tax take to increase in the coming years without waiting for oil prices to rise again Russia needs more economic growth.
The revision will also increase the forecast budget surplus for this year four-fold from RUB482bn ($7bn) to RUB2.139 trillion ($31.5bn), or from 0.5% to 2.1% of GDP. MinFin just reported a RUB3 trillion surplus, or 3.6% of GDP, in the third quarter, but a lot of state spending comes in the last months of the year that will burn up a lot of this surplus cash.
The government collected 81.9% of annual forecasts for of federal budget or RUB13.99 trillion as revenues over the first nine months of this year putting it ahead of target, according to the Accounts Chamber of Russia. Compared to the same period a year earlier the share of oil and gas revenues in the total was up by 6.4 percentage points revenues and their share in the budget is now 54.9%. The report indicates that a quarter of the income (4 out of 16 subgroups) of are below the average. However, the federal budget received 11 types of tax and non-tax revenues, which were not taken into account in the revenue forecast, for a total amount of RUB1.5bn. In the first nine months of 2018, slightly more than 65% of the reserved amount was spent on the implementation of state programs from the federal budget or RUB5.8 trillion.
Experts dispute MinFin's VAT figures. A new study by RANKhiGS and the Gaidar Institute finds that MinFin overestimated government revenue from the value-added tax (VAT) increase in the 2019-21 draft budget. The timing of the story is conspicuous given Kudrin's high-profile disagreements with MinFin. The lower projections are likelier closer to reality. No one in Moscow has any clear sense of what to expect for oil prices, and while the ruble and oil price are no longer strongly linked, the budget still needs dollar revenues, particularly as groups fight over how much debt Russia can run. Siluanov's likely to face more and more political pressure the rest of 4Q.
● According to the draft budget, in 2019 revenues from VAT—bumped from 18% to 20%—will amount to 6.5% GDP. In 2020-21, they will increase to 6.7% GDP.
● The study finds that these figures may be inflated by 0.5-0.7 percentage points, an average of 550–600bn rubles ($8.4-9.2bn).
● Due to insufficient tax revenues, the ceiling for government spending in 2020 should by 16.9% GDP, and 16.8% in 2021. This is 0.3 and 0.1 percentage points lower than MinFin’s plans, respectively.
● The study’s authors conclude that the budget rule, which caps the use of oil and gas revenues, creates conditions for public debt to snowball: any reduction in non-oil revenues leads to an increase in public debt, higher debt servicing costs, and, consequently, increased borrowing.
Russia’s Tax Service wins new legal precedent. The Federal Tax Service won a court case against an Indian company based on information from the Indian tax service. The finding may prove to be a huge deal for foreign partners of Russian firms using offshore-registered subsidiaries to conduct business activities. In this instance, India's tax service aided Russia's in determining that a BVI-registered subsidiary was used to avoid tax liability rather than reducing logistical costs. Firms using subsidiaries and offshore vehicles as a means of avoiding sanctions scrutiny will take note. Much will likely hang on inter-state cooperation between tax agencies, but Moscow's search for revenues to feed state investments may make these types of cases more common. This is a
53 RUSSIA Country Report December 2018 www.intellinews.com