Russian government imposes new tax on metallurgical companies

Russian government imposes new tax on metallurgical companies
Photo: pixnio.com

Rising metal prices remain a concern for the Russian government, as they threaten domestic construction projects funded by the state. Therefore, the Kremlin has introduced new metal export duties effective from August until the end of 2021.

Russia will impose export duty taxes on ferrous and major base metals from 1 August, reports S&P Global Platts. The new taxation system, which will apply to exports of some steelmaking raw materials, semi-finished and rolled-steel products and primary forms of copper, nickel and aluminium, will take 15% as a base and involve a metal-specific rate. The Russian Ministry of Economic Development expects the state budget to receive 113-114 billion rubles ($1,6 billion) from export duties on ferrous metals and 50 billion rubles ($700 million) from duties on non-ferrous metals.

Besides replenishing the budget, the system is aimed at cooling domestic metal prices. Earlier, the Russian government raised export duty on ferrous scrap from 5 to 45 euro per tonne, but the measure effective from the end of January until the end of July 2021 did not stop metal price inflation. In January-May 2021, export prices for Russia’s ferrous metals increased by 30%, and for non-ferrous metals — by 50% year on year. The situation threatens construction projects financed through public funds, considers the Ministry of Economic Development. In addition, the government sees metals companies’ recent profits as excessive. Over the first quarter of 2021, their combined profit amounted to 570 billion rubles ($7,9 billion), which is three and a half times higher than the average for the corresponding quarters of 2017, 2018 and 2019.

Ministry of Economic Development considers that rising metal prices threaten construction projects financed through public funds. Photo: Konstantin ‘KVentz’ Ventslavovich, 2016

Meanwhile, Russian metal companies denounced the measure as discriminatory and purely fiscal. According to President of Nornickel Vladimir Potanin, the company will lose $500 million in taxes on copper and nickel. “The government’s incentive is clear — social justice in the form of larger contributions to the public budget from highly profitable companies, but the tools should have been more fine-tuned,” he told journalists. His counterpart from mining and steelmaking company Severstal Alexey Mordashov expressed hope that the measures would not complicate access to world markets, which already have serious restrictions for Russian metallurgical companies.

NLMK, which is one of the largest Russian steel companies, was even more critical in assessing the government’s decision calling it “discriminatory and purely fiscal”. The duties will reduce the presence of Russian metallurgists in world markets and lead to the replacement of Russian products with metals from other exporting countries, said the company in a statement. It pointed out that the new taxation would affect the entire range of metal products including those for which there was no market in Russia. Imposing the duty on such products will neither increase their supplies to the domestic market nor reduce prices for domestic consumers, reads the statement.

Anna Litvina