Investment coercion did not fly: Mineral Extraction Tax increase for metallurgists postponed

Yelena Ivanova, Natalia Seibil

The debate over whether the owners of smelters and fertilizer plants should share excess profits is not new. For the first time then the assistant to the president, and now the deputy prime minister, Andrey Belousov, complained about the metallurgists in 2017 - they say that they receive natural rent, but they do not want to share with the state. Then Belousov's proposal did not pass. It would seem that now his finest hour has come, and he will be able to achieve what he was denied 4 years ago. But the "steel" kings of Russia closed ranks. The threat to revise taxation for big business made their mouthpiece for the Russian Union of Industrialists and Entrepreneurs, represented by Alexander Shokhin, to declare from the rostrum of the Moscow Financial Forum that Russian business had lost the opportunity for meaningful dialogue on taxation issues. There was an immediate reaction and an invitation to the White House for consultations. The result of the consultations: postpone the new taxation for a year, but raise the excise taxes on liquid steel, bauxite and fertilizers.

- The increase is moderate enough. Retrospectively, they did not take the severance tax. The formula for linking dividends and investments will be worked out over the next year, because the draft law in its current edition is frankly damp. The solution is a compromise. I think this can be assessed as a certain success of business in a dialogue with the authorities, because at least they began to listen to it, and rather quickly, ”the head of the Finance and Economy "Institute of Contemporary Development Nikita Maslennikov .

Kings and cabbage

The truth is that prices for metal structures in the domestic market have doubled over the year. Because of this, the cost of housing commissioned has increased by a third. Such an explosive growth is dangerous not only for the construction complex, but also for the entire presidential program to improve housing conditions. And not only. At the same time, prices for housing and communal services will also rise in terms of repairs and preparations for the winter. The situation is similar in agriculture. Fertilizers have grown significantly in price over the current year. This negatively affected the value of agricultural products and the entire harvest in general.

The mineral extraction tax, which Deputy Prime Minister Belousov is going to raise with the support of Finance Minister Siluanov, is not exactly a tax, says Alexandra Suslina. The subsoil, from which alumina is removed for the production of aluminum, and apatite for mineral fertilizers, do not belong to the companies. When the government taxes extractive companies, it essentially receives the rent due to it. The highest level of rent withdrawal is from 50% to 70% from oilmen. For metallurgists, this figure does not exceed 10%, so there is a reason to equalize rent in different sectors of the economy.

Over the past 10 years, free cash flow in the metallurgical industry amounted to 13 trillion rubles. At the same time, 5 trillion rubles were spent on investments in the industry, the rest - over 6 trillion rubles - the owners paid themselves as dividends, recalls Nikita Maslennikov. This gave the government an excuse to force metallurgists and producers of mineral fertilizers to share.

Fried cat mode

In times of a pandemic, any "money in the box" is good. The pressure with which the government "rushed" into big business caused bewilderment in the expert community. There is some reason to flatten rent, because the current situation is clearly skewed, with oil companies paying the state five times more than metallurgical or fertilizer producers.

"Therefore, there were reasons to deal with these topics, it is another matter that we always do this in the mode of a scalded cat and causes a lot of suspicion and misunderstanding", - says Nikita Maslennikov.

The ardent desire to take away and divide seized government officials so much that even the prime minister was forced to admit that the cabinet's proposal was damp, and in this form it would hardly pass even in an obedient Duma. Another "blitz-krieg" against the oligarchs will bring only short-term dividends, and the impact on the economy has not been properly calculated. We decided to negotiate.

Why the government starts rocking the boat out of the blue is not clear. At the end of 8 months of 2021, the budget surplus amounted to about 1 trillion rubles. Due to high energy prices, the government will receive about 2 trillion additional rubles for the oil industry. For the next year, the cabinet has planned a budget surplus of 1%. Why was there such a fuss before the budget was submitted to the State Duma?

The answer is banal: there is never a lot of money. Economist Igor Nikolayev believes that one can say “everything is fine, wonderful marquise”, but in fact understand that the prospects are not as unambiguous as it seems at first glance. The situation with covid will especially affect the economy:

- When the mortality rate is very high for several months, and when the population of the country begins to decline rapidly, then this is not a short-term impact, but a long-term and growing negative impact. And in such a situation, one must think that if the economy does not develop steadily quickly, where to get the money. Therefore, despite the visible indicators, thinking about the future, I want to collect money as much as possible in a box.

The authorities will closely monitor those who, in their opinion, have unfairly enriched themselves in the foreign economic situation, and they are simply guaranteed additional taxation, since there is a demand for this in society. The doubling of the votes cast for the Communist Party in the last elections, which the population traditionally considers the protector of the poor, will justify any government action in this direction, legitimate or voluntaristic.

Investment compulsion

The government wants to force the oligarchs not to withdraw profits and pay dividends to themselves, but to invest it in production. The dilemma is that the authorities want money now and for the past, and investment cycles in heavy industry take years. If in ferrous metallurgy the construction of new capacities takes a couple of years, in non-ferrous metallurgy the commissioning of new copper-smelting capacities may take 10 years. MET for alumina will lead to the fact that prices for bauxite on the world market will become uncompetitive. For all minerals, the situation in the country is similar: easily accessible deposits are close to being developed, while heavy ones require significant investments. In addition, big business claims: dividends are not withdrawn, but invested in other facilities and in other areas. For example, the carbon agenda and carbon neutrality.

- Then the government says: let's invest. If you don’t want to raise the severance tax, let’s increase the income tax, but from a stimulating point of view. If you invest, there will be no increase. And if the level of dividend payments is multiples of the level of investment, then you will have a progressive income tax. These proposals are now being discussed, and some kind of compromise will be found.

The government believes that such "investment without love" will guarantee economic growth. But there are no such guarantees. Igor Nikolayev is skeptical about such methods:

- Economic growth, of course, very much depends on how much you invest in fixed assets. But investments can be different. If there is no demand, and you were simply forced to invest ... relatively speaking, to build another workshop, blast furnace, rolling mill, then what impact will these investments have on the economic growth? The authorities are mistaken here, they are clearly exaggerating the importance of simply investing in fixed assets. It is important what, in what conditions, whether investments can be effective.

It may turn out that they will be forced to increase investments in fixed assets, but there will be no proper return on them. And this is the big problem.

Taxes for harm or good

New taxes are a way to encourage companies to invest domestically. Nobody wants to give money voluntarily. Therefore, everywhere they use the method of the stick, then the method of the carrot. Gingerbread works better because businesses, especially large ones, are allowed something, they get additional incentives, and the effects are obvious.

- We usually use the whip method: let's ban something, impose a tax, a fine, and then, if this activity is prohibited, people will have no choice. It seems to me that, ideally, there should be a balanced story, - says the Expert of the Economic Expert Group, head of the "Fiscal Policy" direction Alexandra Suslin.

The idea of reforming payments to the budget by industrial giants has been ripening for a long time, so the increase in the tax burden did not surprise either the industrialists themselves or the expert community. And although the decision on the introduction of the MET or a new rate has only been postponed until 2023, few have doubts that there will be an increase. The question is actively being worked out that the income tax rate for dividends will be significantly higher than for the profit that will go to investments.

- This affects the value of the company's shares, which means that companies have less opportunities to raise funds. This means that there is a problem with proper investment, - says Igor Nikolayev.

Equal and even more equal

Despite the natural desire to get more money, this time the government decided not to cut from the shoulder, but to listen to the voice of business. This is a great achievement in the days of the command-state leadership of the economy. Half of the "wanted" overlays remained. It could have been worse, economists say. The other half was postponed, but this does not mean that they will not return to it.

"Victory or not - they heard each other and fixed a position that would not sharply worsen, because retrospective taxation is a direct violation of the norms of the tax code, because the new introduced rates do not have retroactive effect. Then it would have to change significantly, because it would be a scandal for the whole business, because it was corrected, and why others did not fix it? This would be a sharp deterioration in the investment climate. A massive conflict was brewing. Thank God, they refrained from this", - says economist Maslennikov.

It is not excluded that after speaking with a united front, individual negotiations will begin with each individual oligarch. The planned measures will affect everyone, time will tell.

"The upper layer, the top of the business close to the authorities, has a very low transparency of processes. Who will be affected, I would not be surprised if this is decided on an individual basis. It is very difficult to predict this without being in these circles. Who will be given benefits, who will not, who will be touched, who will not - this is decided at a level to which I have no access", - acknowledges Alexandra Suslina.

For example, banks will not be affected by this pursuit of taxes. Formally, the financial industry has nothing to do with natural resource rent. From a tax point of view, the fashionable expression "People are new oil" is not relevant. Despite the fact that Sberbank, as a result of a simple increase in customer service fees by 1%, received with one stroke of the pen an additional 140 billion rubles.

- The banking system is the country's circulatory system. The attitude towards them is more delicate. A gentle attitude plus strong lobbying positions - as a result, we have a situation where they are treated “more leniently,” says Igor Nikolayev, not without irony.

It is also true that banks are sparing, because they buy back 80% of government bonds. Nikita Maslennikov asks what volumes of placement were last year for the placement of the federal loan. And he himself answers: more than 2 trillion rubles in addition:

- All this money was consumed and went to support the economy and the population, due to the fact that they bought government bonds. And banks use the profit to create a technology banking business, create ecosystems that also help the real sector to develop, especially small business. It is used for lending. There is a question about banks, but there is an answer.

So far, all the exercises of the Ministry of Finance to replenish the treasury concern only big business. But in economics, everything is interconnected. It is not excluded that the new excise taxes will be transferred to selling prices, and then the spiral of price increases will spiral further.

And there are no separate taxes on large and small businesses either. Large taxpayers are always under scrutiny, because the scale at which one can collect from a large business than what is received from a small or medium business. But the tax conditions are the same, what and with what success you would not be engaged, says Alexandra Suslina:

- Recently, we note that the focus of attention has slightly shifted to both medium and small businesses, despite the fact that everyone understands that in crises any increase in the tax burden has a discouraging effect and leads to the fact that firms are forced to go bankrupt, close or go into the shadows. This is not very good, so I have a hope that common sense will prevail and tax appetites will diminish a little.

The authorities' attention temporarily switched to the oligarchs, and now they will try to get money from them, Igor Nikolayev agrees. But when it turns out that this does not help, the authorities will definitely switch to small ones:

- While attention will be shifted to the "big", small businesses need to take advantage of this situation to strengthen themselves, because no one is insured. "Krupnyak" will begin to show that this is wrong, wrong. In the end, they will leave him alone, and here the small business will understand that they could not sit out on the sly. How did Belousov speak about metallurgists? "Here's the price tag." They can say the same to small businesses.

The Russian state is distinguished by its sluggishness and inconsistency. Now we urgently need to "dispossess" metallurgists, and all forces are thrown into this. The point is that the oligarchs do not take their profits offshore. But there are more pressing problems as well. For example, we are talking about carbon neutrality. Strategies for what the government will do when the EU cross-border JI tax came into force has never been, and is not. The Ministry of Finance is at the same time quarreling with metallurgists and announcing that it will be ready to compensate for losses from foreign tax payments at the expense of the budget. Nikita Maslennikov knows at whose expense this will happen:

"We can say as much as we like that we have the absorbing capacity of forests, but they will answer you - they are constantly burning with you. If then the state is forced to compensate for the overpayment of taxes to foreign states by its own companies, then it will have to pay for its own sluggishness. Naturally, at our expense".