11 Feb 2020 10:35

Russian ministry proposes to raise extraction tax for coal mining, diamonds, fertilizer - paper

MOSCOW. Feb 11 (Interfax) - Russia's Finance Ministry has drafted proposals to raise the mineral extraction tax (MET) for a number of sectors outside the oil and gas industry, national daily Kommersant reported on Tuesday, citing unnamed sources in the government.

The potential changes could have the most impact on the coal mining industry, the paper's sources said. The ministry has proposed to add a factor to MET rates in coal mining that would take into account the situation on world steam and coking coal markets, which in the conditions of 2018 would have generated 40 billion rubles for the government budget while reducing the operating margin of coal companies by 3 percentage points to an average of 21%. The factor would not be used if export prices fall below a certain level.

However, a spokesman for the ministry said it is not working on any bills in this regard.

Kommersant said the ministry is also considering changing the calculation of the MET for rough diamonds, for which the tax rate is now 8% of value. The pricelists for rough diamonds used for valuation are subject to quarterly review taking into account world prices. The process takes one to two months, and prices become out of date. The ministry has proposed to use actual sale prices for calculating the MET rather than pricelists that are updated quarterly, but no less than the price of the initial valuation, the paper said. In this case, the budget could get about an additional 3.3 billion rubles per year.

The ministry has also proposed to review the MET for production of mineral fertilizers, Kommersant said. The idea is to tax the financial result - the difference between revenue from the sale of raw material and incurred expenses - rather than the mined product.

The implementation of the proposals described by the paper would reduce EBITDA at steelmakers Evraz, Severstal and Magnitogorsk Iron & Steel Works (MMK) by, respectively, 2.8%, 0.5% and 0.3% (of forecast figures for 2020), but it would be neutral for Novolipetsk Steel (NLMK), VTB Capital analysts estimated. The proposed method for calculating the MET would reduce diamond miner Alrosa's EBITDA by 3%.