Russian Ministry of Finance ready to fill budget with oil rubles

Russian Ministry of Finance ready to fill budget with oil rubles

The Russian Finance Ministry has prepared new proposals on taxes aimed at replenishing the budget. It is planned to take ruble revenues from oil exporters, who benefited in ruble terms from the fall in oil prices and the collapse of the Russian currency, Vedomosti reports.

The main proposal of the office is to change the formula for mineral extraction tax (MET), as a result, tax revenues are expected to grow next year by 609 billion rubles, in 2017 by 525 billion rubles, and in 2018 by 476 billion rubles.

According to the publication, this will negatively affect income tax and regional budgets. The department offered to solve the problem by releasing the next tranche from the federal budget.

Another way to get oil money is to postpone the reduction of export duties. There is a possibility of freezing taxes for one year. If the fee will remain at a high level, the budget will receive about 150 billion rubles.

Deputy Prime Minister Arkady Dvorkovich said that the government plans to evaluate the potential revenues if the charge for severance tax on oil will rise.

Kremlin spokesman Dmitry Peskov, in his turn, said that "nothing concrete is being discussed on this matter at the moment."

Sberbank CIB analyst Valery Nesterov said in an interview with Vestnik Kavkaza that "the full proposal is unlikely to be implemented, because a sharp decline in investment is likely to be a consequence of such a step, which would lead to a drop in oil production, and would be reflected in a further reduction of federal revenues, which depend on the volume of hydrocarbons produced."

"But we must understand that the appearance of such proposals is due to a lack of funds to fill budget. It is impossible not to index pensions at 4%. It's funny and sad with such an inflation rate," he said.

At the same time, "the oil workers are protected from the effect of lower oil prices due to the fact that they purchase mainly Russian equipment." "They are paying less, so less tax revenue goes to the Russian budget. Therefore, such a statement is an indication that the Ministry of Finance could not do it another way. They need money quickly, in the next year or two, so this economic cycle will be the most difficult," Nesterov suggested.

"This is dangerous for many reasons. First, the oil companies were promised stability in the tax regime in the summer. Capitalization greatly decreased in the oil companies, so paying even smaller dividends is a further ruining of the Russian stock market," the expert noted.

"Some of these proposals can be implemented. Perhaps it will not be 500-600 billion rubles from the oil companies, but maybe 100-200 billion rubles. There is still the possibility that the proposal  of the Ministry of Finance simply will not pass," Valery Nesterov concluded.

According to the Associate Professor of  Financial Management, Management Accounting and International Standards of Financial Activity of the Higher School of Finance and Management of RANEPA, Dmitry Tikhonov, the implementation of this plan is possible only as a last resort. "The oil companies pay 55% of their revenue in taxes. Accordingly, if it will be increased, it will be 60%. And this is difficult for oil companies, it would probably break their investment campaigns. So export revenues will be reduced, this means that the budget also won't receive something," he explained.

The professor of the RANEPA Chair of Economics and Finance of the Public Sector, Lyudmila Pronina, said that the government will support this initiative. "The fact is that we have a very bad budget now. There are new quite pessimistic predictions. If this scenario – $ 40 per barrel – will come to pass, there will be nothing to say. So I think that another move towards fiscal maneuvering is justified," she said.

"The last time, a similar initiative wasn't approved by the oil companies. Nevertheless, in my opinion, it's still better than to scrap social programs and to save on pensioners. It is not that it is a good measure, but we need to pick the lesser of two evils. In this difficult situation it is the best solution to maintain our social policy," Lyudmila Pronina stressed.

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