Page 26 - RusRPTOct23

On the one hand, the nominal growth of budget revenues will be facilitated by the weakening of the ruble that has already occurred and accelerating inflation (by the end of 2023 it should be 7.5%).
On the other hand, a new budget rule, announced on September 22 by Finance Minister Anton Siluanov, should increase revenues. In fact, we are talking about a return to the old formula, forgotten after the start of the war: all oil and gas revenues received above the cut-off price set by the government go to the National Welfare Fund, and all income below this price goes to the budget. Only the cut-off price will now be $60 per barrel - $15 higher than it would have been under the old formula.
The chief economist for Russia at Bloomberg Economics, Alexander Isakov, estimated the effect of the new version of the fiscal rule at RUB1.5 trillion in additional budget revenues.
But all this will not bring RUB9 trillion, says The Bell. The government directly hinted at how they were supposed to receive them this same week, announcing the introduction of new duties for exporters. They will be in effect from October 1 until the end of 2024. Depending on the exchange rate, the duty will be 10% for fertilizer producers and 4–7% for all other industries. At an exchange rate of RUB80 per dollar and below, the duty will be reset to zero (but the forecast of the Ministry of Economy - the average annual rate of RUB90.1 - does not assume this).
In fact, we are talking about an indirect tax for export-oriented businesses. A businessman working in the fertilizer market shared his calculations with The Bell: for his industry, the introduction of new duties is equivalent to an increase in the effective income tax rate in the fourth quarter of 2023 to 40% (the nominal rate is 20%), and taking into account the previously introduced one-time tax on excess profits - 55%.
This proposal was not particularly discussed with business, two of The Bell’s interlocutors say. Moreover, he claims that the chief commissioner for combating inflation, the Central Bank, did not participate in the discussion. This seems strange to The Bell’s interlocutor - after all, after the proposal appeared, experts immediately saw pro-inflationary risks in it.
The government does not have many other options for replenishing the budget, other than increasing or introducing new taxes. The growth of domestic demand, on which the economy grew (and with it non-oil and gas budget revenues) in 2023, should soon slow down due to an increase in the Central Bank rate.
At the same time, the budget, which plans to increase spending by 26%, means that high rates are here to stay, otherwise inflation will get out of control. And high rates, in turn, make it more expensive for the Ministry of Finance to service existing government debt (the yield of 40% of currently outstanding OFZs is tied to the Central Bank rate) and worsen the conditions for new borrowings.
26 RUSSIA Country Report October 2023 www.intellinews.com