Page 71 - RusRPTDec21

6.1.2 Budget dynamics - specific issues...
Next month, Russia and Switzerland will begin to change the agreement on the avoidance of double taxation to reduce the withdrawal of capital from the Russian Federation to the “tax haven”, Russian Finance Minister Anton Siluanov said. The Ministry of Finance has already sent a proposal to Switzerland to revise the tax agreement. “We will have an intergovernmental commission in the next month,” Siluanov said. Such agreements were in force with many countries. But the double tax treaty – so that the same income in different countries is not taxed twice – has become a convenient loophole for complete tax evasion. For example, according to the agreement, the income of Russian citizens is not taxed in Russia when money is transferred to another country, but they also do not take tax there to attract as much money as possible from wealthy Russians. In March last year, Russian President Vladimir Putin proposed to introduce a tax of 15% on income in the form of dividends and interest, which are transferred from the Russian Federation to accounts abroad. For this, they began to adjust agreements with other countries.
The 2022-2024 budget includes a record level of spending paid out to oil companies in order to keep domestic fuel prices down. Large oil firms are slated to receive 800 billion rubles ($11 billion) to hold prices down over the time period, with 469 billion rubles coming in this year alone in response to the current inflationary shock through adjustments to the so-called damping mechanism intended to offset rises in crude oil prices passed on to refiners. In effect, the budget has been subsidizing the oil sector since March despite the price rally as a means of inflation control. The Central Bank's October consumer inflation report usefully breaks down the components of monthly price increases and shows that while not decisive, petroleum products are still significant in their influence and risks they pose spilling over into relative costs for other sectors and feedstock – we've obviously seen that with fertilizers and natural gas, but there are also petroleum product inputs to industrial sectors as well:
Though refined products don't account for all the increase in their category (light surfish green), communal service price increases trailed inflation generally and tobacco hasn't seen the same kind of price surge as crude oil. It's understandable why the government has committed the resources to hold prices down for wholesalers and retailers given the huge exposure to bankruptcies that would ripple through independent retailers across the country and create shortfalls locally and regionally until new ownership put bankrupt assets back to work. But the level of support looks funnier when you factor in the size of the expected budget surplus for 2021 with the current level of spending for the companies and the absence of large commitments of capital elsewhere to manage bottlenecks and spur demand. The following covers the budget in trillions of rubles:
MinFin is projecting a surplus of over 2 trillion rubles for 2021, yet there isn't more consideration for specific forms of support – food debit card proposals could be adapted to cover fuel costs, for instance, nevermind large investments. The National Welfare Fund has also leveled off at over 12% of GDP while we wait to see just how much of the liquid reserves are actually
71 RUSSIA Country Report December 2021 www.intellinews.com