Russia may increase mineral extraction tax for metallurgical companies by 3 times

ovolipetsk smelter, one of Russia's largest metals' companies. Photo: Oleg Harseev Kommersant

The mineral extraction tax for metallurgical companies in Russia can grow by about three times, up to 3-5% of their revenue. Such plans are contained in the updated draft of the main directions of tax and budgetary policy, which has been recently prepared by the Russian Ministry of Finance. According to analysts, with this option, the tax burden on the industry could increase by 100 billion rubles a year.

The government considers such taxes as reasonable as, in accordance with global practice extraction tax for solid minerals is set at 3– 5% of revenue of producers, while in Russia it does not exceed 1–2%.

The rise in metal prices this year has already prompted the government to impose export duties. It is assumed that from 2022 they will be replaced by a flexible MET, the amount of which will depend on world prices for raw materials.

Now solid minerals, except for diamonds and precious metals, are taxed in Russia at a fixed mineral extraction tax rate. In 2020, it was increased by 3.5 times, which led to the attraction of additional 56 billion rubles a year to the state budget.

Currently the amendments to the Tax Code on the growth of the extraction tax are now being actively discussed and may be introduced on September 20.

According to the government, even during the period of low world prices i9n 2014–2019, a high level of income was formed in the non-oil and gas resource sector. Over the past ten years, operating cash flow in the industry amounted to 13 trillion rubles, and capital investments - 5 trillion rubles. At the same time the distribution of the industry’s revenue in favor of state budget is low - 1-10% versus 50-70% in the oil sector - and this imbalance only intensifies with the rise in world prices.

By: Eugen Gerden