Windfall tax – translated from English “windfall tax.” But it is more correct to call it a windfall tax.
The government made an offer that Russian companies cannot be refused. Entrepreneurs are expected to make a feasible, albeit unplanned, contribution to replenish the country’s budget. We are talking about a one-time voluntary tax collection, which Russian companies must pay from the windfall profits they received last year. We find out who will have to pay the new tax and if it will be regularized.
WHAT IS A ONE TIME TAX LEVY
Windfall tax – translated from English “windfall tax.” But it is more correct to call it a windfall tax. It represents a higher tax rate on sudden and unplanned income from a particular business or industry.
– It is a tax on extraordinary income, on super-profits that people have not earned. That is, they did not create new technologies, productions to earn this money. And because of the market conditions, some kind of excess profit fell on them. And now they were offered to give part of this excess profit, – explained the director of the Socio-Economic Research Institute of the Financial University of the Government of the Russian Federation, economist Aleksey Zubets, on the air of Komsomolskaya Pravda radio. – Many companies made a lot of money last year and the penultimate. These are, first of all, metallurgists, the same oil and gas workers, coal miners, etc. It was assumed that they would be charged additional taxes, which should help plug this hole in our budget.
WHY ARE WE TALKING ABOUT VOLUNTARY CONTRIBUTION AT THIS MOMENT?
The problem is that the Russian budget will be in deficit this year. The deficit should be 2.93 trillion, or 2% of GDP. But it’s according to plan. Actually, the amount can grow quite significantly. The fact is that already in January and February 2023, the deficit reached 2.58 trillion rubles, this is 88% of the annual plan. There are still 10 months left until the end of the year. There are already forecasts that the deficit may exceed the forecast figures by 1.5 or even 2 times.
This situation arose due to the drop in income from the sale abroad of our energy resources, oil and gas. Yes, last year the industry gave record numbers. But after the introduction of the cap on oil prices and the consequent embargo on Russian oil and oil products by the EU countries, our revenues began to decline. This was partly offset by an increase in supplies to other countries (mainly China and India), but in January-February Russia’s oil and gas revenues nearly halved compared to January-February 2022, to 947 billion rubles.
And although the Government intends to rectify this situation, now it does not have much room for manoeuvre. But obviously our authorities do not want to increase taxes. Therefore, a single tax levy is a completely civilized alternative to changing tax rates.
WHO WILL HAVE TO PAY TAXES
The Ministry of Finance announced that companies with a profit of more than 1 billion rubles by 2021-2022 will pay a one-time fee to the budget. But with one important caveat: “with the exception of companies in the oil, gas and coal sectors.” Where suddenly for them such privileges? Economist Alexei Zubets explains:
– Many companies made a lot of money last year and the penultimate. These are, first of all, metallurgists, the same oil and gas workers, coal miners, etc. It was assumed that they would be taxed additionally, which should help plug this hole (in the budget, – Approx. ed.). But the oil and gas companies said that we had profits in 2021 and 2022, but now we have no money, because the market situation is disgusting. Why the hell should we pay with the body fat we need this year?
The Ministry of Finance announced that companies with a profit of more than 1 billion rubles by 2021-2022 will pay a one-time fee to the budget.
– And then the government went the other way, – continues the economist. – Those companies that this year will suffer a bad market situation are the coal, oil and gas companies – they are excluded from this story, and they will tax all the others. All these are companies that have a profit of several billion rubles, that is, they are not small or medium-sized companies, and it does not matter what sector they are. These are the banks, the same metallurgists and so on.
Experts say that depending on the final configuration of the decision, which must be approved by the State Duma and take the form of a law, a single tax can affect from several hundred to two thousand Russian companies.
WHAT AMOUNT DOES THE GOVERNMENT EXPECT TO RECEIVE?
Here the proverb “Appetite comes with eating” comes to mind. For the first time, the voluntary contribution was discussed on February 8. At first, the Ministry of Finance intended to attract a total amount of 200 billion rubles. Based on this, the excess profit tax percentage for specific companies should have been calculated. And on February 17, the head of the department, Anton Siluanov, announced that the Ministry of Finance already intended to collect 300 billion rubles.
Then the Chairman of the Russian Union of Industrialists and Entrepreneurs (RSPP) Alexander Shokhin urged to quickly decide on the tax collection formula, while the amount has not yet grown. “We believe that each month the discussions will lead to 50 or 100 billion additional contributions,” complained the head of the RSPP.
But since then, the amount has not changed, and Anton Siluanov said at a recent congress of the RSPP that the rate of a flat rate to the budget of trade excess profits for 2021-2022 will be about 5%. The exact figure will be determined in early April.
WHERE ELSE DO COMPANIES TAKE SINGLE TAXES FROM?
One-time fees on excess profits are not a Russian invention. It was widely used in different countries including Australia, Mongolia, Turkey, and the US.
– This is a world practice, the same is happening in Europe now, – explained Aleksey Zubets to KP. – The European Union decided to collect money from oil and gas companies, which last year made crazy money due to high prices (like our companies, I must say). And now in many countries there is a discussion, the determination of the amount of this amount. Not everyone is willing to pay, but the European Union obliges them, because they have to share. Last year these companies made a lot of money, this year we need to somehow support consumers so they don’t pay too much on utility bills.
WILL THE CONTRIBUTION BE EXACTLY UNIQUE AND VOLUNTARY?
The head of the Ministry of Finance said that a one-time business contribution will already be legally fixed at the spring session of the State Duma. The amendment will take effect in 2024. But since the country needs the money now, the government intends to create favorable conditions for those companies that are ready to make early payments this year. The possibility of payment will be maintained in the next year, but it will be less profitable.
– This will be a unique story, the government is not going to raise taxes, – our expert Alexei Zubets is sure.
The contribution must also remain voluntary. At least legally. This was emphasized even in the Kremlin. But for some reason, it’s hard to believe that there will be a company that has made a windfall, that will have the audacity to voluntarily offer to share the windfall with the country and not justify the hopes of the government.