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“On one hand, the high tax collection rate in 1Q17 is the result of the automated system for controlling VAT, introduced earlier by the government, and, which improved both VAT and profit tax collections,” Alfa Bank said in a note. “Therefore, it is quite positive for the revenue side of the budget and can play a supporting role for a potential increase in budget expenses. However, we see that practically 50% of the increase in budget revenue is still attributable to extraction tax growth and, we believe, the higher tax burden on businesses will underpin our conservative economic growth outlook for 2017.”
6.1.3 Budget dynamics - funding, privatization
MinFin is hoping to earn roughly 30bn rubles ($540 mn) from the sale of a 20% stake in Novorossisk Sea Trade Port (NMTP), according to Deputy Finance Minister Alexei Moiseyev. Moiseyev adds "we expect to privatize NMTP this year through a stock exchange sale," clarifying that with the privatization of leading bank VTB unlikely this year, Rosimushchestvo (the state holdings agency) has been ordered to find a replacement. That said, NMTP would only cover a third of the expected earnings of a VTB sale, and there are not yet plans for the other two thirds. Investors like the news, which implies a valuation a fourth higher than the current market cap: shares jumped by 5%. To note, its as of yet unclear whether this is MinFin's valuation or Sberbank CIB's. NMTP is Russia's largest dock operator, with assets in the Black and Baltic seas. It is controlled by Transneft and the Summa Group through Novoport Holding Ltd
6.1.4 Budget dynamics - the 20/20 tax maneuver
Catherine the Great once remarked that “taxes for the state are like sails for a ship. They serve to guide it to harbor, not to overwhelm it with their burden or keep it forever at sea and ultimately sink it.” Now, the Russian ship of state is again facing rough economic seas. Given a combination of low oil prices, an OPEC deal that has failed to raise them as much as hoped, continued sanctions, and a growing realization that the economy faces a structural growth cap, tax reform is once again on the agenda. Early 2017 has seen discussion of a post-election ‘tax maneuver,’ otherwise known as the 20/20 plan, that could have significant consequences for the economy – and can tell us much about the priorities of the local economic leadership. Understanding the plan, however, first requires a look at exactly how the Russian government collects its revenue, as well as how the tax system impacts average Russians.
Death and Nalogi (Taxes)
Russia’s federal government collects four kinds of tax revenue: corporate taxes, excise taxes, the value-added tax (VAT), and mineral taxes, predominantly the mineral extraction tax (MET, or NDPI in Russian). As visible in the chart below, revenues from each category are not split evenly: the MET and VAT made up some 84% of total federal revenue in 2016. Officials often cite a decreasing dependence of the federal budget on hydrocarbon revenues in recent years (down from a figure closer to 50%), and while this is mathematically correct, the driving force behind this trend is lower oil prices, not calculated reform: the government is simply making less money on oil.
51 RUSSIA Country Report April 2017 www.intellinews.com