Floating tax on Russian grain exports confirmed
From June 2021, exports of wheat, maize and barley from Russia will be subject to floating formula-based tax to protect the Russian market from global price volatility. This is another measure introduced by the Kremlin to counteract food inflation. Previous measures have slightly lowered export prices, as exporters began to sell their stocks off.
On 4 February, Russia confirmed that it will impose “floating tax” on its wheat and other grain exports from June, reports S&P Global Platts. The Kremlin expects that imposing the tax should help minimise the negative impact of global price fluctuations on Russia’s market. The tax covering wheat, maize and barley will come into effect on 2 June, but a grain export reporting system, which will be used to determine the duty values, will be launched on 1 April.
According to the new mechanism, grain sellers will be required to register their export contracts on the Moscow Exchange. According to the Russian government, it will allow acquiring more accurate price indicators. For wheat, the base price indicator under the floating tax system amounts to $200 per tonne. If the calculated market benchmark price exceeds this threshold, the value difference between the market benchmark price and the base export price will be taxed at 70%. For maize and barley, the base price indicator is set at $185 per tonne.
The tax incentive is seen as an additional measure to tackle food inflation. In December, the government introduced an export quota, which will limit wheat shipments to 17,5 million tonnes in 2020-2021. The quota will come into force from 15 February and last until the end of June. Russia will charge a tax of €25 per tonne on wheat exports within the quota between 15 February and 28 February, and after that, the duty will be doubled to €50 per tonne. The quota mechanism also covers maize, barley and rye.
According to analysts, the move may make Russian wheat exports expensive going forward. Managing director of SovEcon consultancy Andrey Sizov considers that farmers will be forced to sell grain before the mechanism comes into effect, which will result in higher exports. On 18 January, Russian wheat export prices topped the $300-per-tonne mark for the first time since S&P Global Platts started assessing the commodity in 2014. However, later prices dropped again below $300 per tonne, as Russian sellers began to increase shipping before the imposition of the new measures and exports flooded the market. On 4 February, Russian wheat 12,5% FOB Black Sea was assessed at $285 per tonne.