Kremlin seeking to top budget up with oil taxes
Lower oil revenues and substantial output cuts have undermined Russia’s economy this year: the country’s budget deficit may amount to 6% in 2020. However, the government may partially compensate by other oil money, as it is considering changes in taxation for the local oil industry.
The Kremlin wants to raise additional 143,4 billion rubles ($1,9 billion) from oil production over the next two years, says Reuters citing a document prepared by the country’s Ministry of Finance and published on a government website on 3 August. The ministry intends to adjust the Tax Code and profit-based tax on oil production implemented last year. As a result, the budget is meant to receive additional revenue of 87,8 billion rubles in 2021 and 55,6 billion rubles in 2022.
According to Kommersant, the aggregate figure may potentially rise to 200 billion rubles within the next three years, as the government needs to replenish the state budget depleted by low oil prices. Gazprom Neft and Rosneft are supposed to carry most of the burden. VTB Capital rated “the potential changes to the regulatory regime as negative for the industry’s fundamentals”.
In June, Deputy Minister of Finance Alexey Sazanov said that introduction of the profit-based tax instead of mineral extraction for some oilfields resulted in 213 billion rubles of losses for the Russian budget last year. According to Sazanov, it was not the right time to apply the levy, which was aimed to support oil production, widely. He also estimated potential losses of the Russian budget due to low oil prices at 2 trillion rubles in 2020.
Meanwhile, Fitch affirmed Russia’s long-term rating at BBB with a stable outlook on Friday. The outlook reflects the agency’s view that Russia’s policy will further “contribute to anchor macroeconomic stability improvements and preserve the strength of the sovereign balance sheet”.
According to Fitch, Russia’s federal government deficit may total 5,1% of GDP in 2020 on account of lower oil prices, production cuts eroding oil revenues, weaker tax collection and anti-crisis budget measures estimated at 3% of GDP in 2020. Combined with regional and local figures, the country’s general budget deficit may amount to 6% in 2020. Last year, the Russian budget showed a surplus of 1,8%.
The agency expects Russia’s economy to contract by 5,2% in 2020 “due to the impact of the COVID-19 pandemic and containment measures on domestic demand and exports”. Under Fitch’s baseline scenario, growth is supposed to recover to 3,6% in 2021 and 2,5% in 2022 thanks to a relaxed monetary policy stance and the implementation of the national economic recovery plan. However, weaker global growth and/or a strong resurgence of coronavirus may lower the expectations further.