Russian govt mulls 20% windfall profit tax for 2025 using 2018-2019 as base - source
MOSCOW. April 13 (Interfax) - The parameters of a windfall profit tax for 2025 that are now being discussed by the Russian authorities differ from the first application of a windfall tax a few years ago.
An order from the president dated March 10 instructs relevant agencies to work out proposals by April 10 to impose a windfall tax of 20% for 2025, a source familiar with the discussions told Interfax.
The source said the authorities are considering exacting the tax on the amount by which profits companies earned in 2025 exceeded the average profit in 2018-2019, which is the period used as the base for calculating the windfall tax on profits for 2021-2022.
The tax rate then was technically 10% of the amount by which profits for the two years exceeded profits for 2018-2019, but the tax was essentially half of this, because companies could lower the effective rate to 5% by making a security payment early, in October-November 2023, which is what the overwhelming majority of companies did.
Interfax has asked the Finance Ministry if a similar mechanism for early payment is being discussed now and, if so, what the effective rate of the tax will be if the government decides to impose it, but the ministry has not yet commented on the status of the discussions about the tax or its possible parameters.
The windfall tax for 2021-2022 ultimately generated 318.8 billion rubles of revenue for the budget, of which only 3.3 billion rubles was received in 2024, meaning at the full rate of 10% rather than the discount rate of 5%.
That windfall tax did not apply to companies in the oil, gas and coal sectors; the main payers are mining, metals and trading companies.
A windfall profit tax was discussed publicly in late March. When the State Duma reviewed the Central Bank of Russia's (CBR) report on March 26, a member of the lower house raised the issue of imposing an additional natural resource levy in a number of sectors in light of rising prices to support the budget. Economic Development Minister Maxim Reshetnikov said in response that this issue could be discussed, but linked it to the investment cycle of companies in these sectors.
"Several questions were voiced about resource rent taxation. Obviously, as you recall, this issue came up in 2022. The question was about a windfall tax. At the time we adjusted taxation primarily regarding the mineral extraction tax (MET), made the MET essentially progressive and linked it to the growth of prices for resource commodities," Reshetnikov said.
"We probably need to see to what extent this works and whether this was fully done everywhere, because for a number of items prices are now probably at levels that few anticipated they could actually be. This is a subject for separate analysis. We also need to correlate all this with the investment cycle in these sectors, so as not to also jeopardize projects that have started. So we're open to dialog here," Reshetnikov said.
On the same day, President Vladimir Putin met with large businesses on the sidelines of the Russian Union of Industrialists and Entrepreneurs (RSPP) congress. One of the participants in the meeting proposed to give the state a large amount of money from personal funds, Kremlin spokesman Dmitry Peskov said later. The issue of a windfall tax was also raised, RSPP head Alexander Shokhin said.
"I personally raised this issue at the meeting after one of the participants offered [to make a contribution]. I said, Vladimir Vladimirovich, we had a windfall tax, if we find some companies that have earned a windfall profit in the current market situation, we had a formula, we worked on it for two years with your former aide [current Defense Minister Andrei] Belousov and the Finance Ministry and Economic Development Ministry. The formula is such: we take the two current years, the last two years and the preceding two, compare the profit, see whether there was a windfall profit somewhere and exact some tax on it, but voluntary corporate donations just don't make sense," Shokhin said, elaborating the position of big businesses.
The mechanism of a windfall tax and its formula already exist in legislation, which makes it possible to not introduce any new tax, he said. "This is the simplest way, to just cite the existing tax," Shokhin said.
He did not say whether he believes that payments could already be made in the middle of this year, but recalled that in 2023, when the windfall tax was imposed for the first time, the government and businesses worked out a mechanism for advance payments, allowing companies to pay at a discount before the end of the year toward payments for the next year.
"So all the mechanisms exist in the Tax Code. It's another matter that there's no profit, many are in the red," Shokhin said.
Shokhin said later that the imposition of a windfall tax on the same scale as in 2023, when many companies genuinely had additional income from favourable market conditions, would be impossible in the current situation. There can be targeted decisions, but the conditions for a windfall tax "as a fairly mass practice" that applies to all key sectors, foremost export-oriented ones, do not exist, he said.
Meanwhile, the head of tax issues at the Finance Ministry, Alexei Sazanov said it was still premature to discuss the existence of a tax base for a windfall tax on income for 2025, as well as in regard to proceeds from the favourable situation due to the Middle East conflict. The deputy finance minister said that profit tax declarations for 2025 are still just coming in and they have yet to be analysed. As for windfall profits this year, it is difficult to say at this point "whether this is a one-off phenomenon, it's not clear how long it will last," Sazanov said.
