Russian Finance Ministry denies energy companies with 20%-plus govt share exemption from windfall tax

MOSCOW. July 18 (Interfax) - Russia's Finance Ministry does not support the amendment of Pavel Zavalny, head of the State Duma energy committee, to exempt electric power companies with a 20%-plus share of state participation from the windfall tax, State Secretary and Deputy Finance Minister Alexei Sazanov said during a speech at the State Duma budget committee.

The amendment was rejected during the committee meeting.

Energy Minister Nikolai Shulginov had previously requested from the Russian government a similar exemption, a source familiar with the content of the corresponding letter sent on June 28 told Interfax. According to the source, the Energy Ministry argued its position by the fact that a number of activities are conducted according to government-regulated tariffs in the electricity industry. Moreover, the government accounts a part of the profit as a source of financing for investment programs in the upcoming regulatory periods.

Russia has already received part of the profits from these companies in the form of dividends, and has determined the long-term goals for utilizing the profits retained within the company, the Interfax source said when relating the Energy Ministry's reasoning.

The ministry has estimated the burden on companies with government participation indicated higher to be 21.8 billion rubles, based on a tax rate of 10%, with most falling on Rosenergoatom at 9.7 billion rubles, Inter RAO at 5.2 billion rubles, and Rosseti at 3.3 billion rubles, according the source of the data.

The amendments to the Tax Code, which introduce the one-off windfall tax to the budget from the excess profits of Russian companies for 2021-2022, formally enter into force only as of January 1, 2024. However, the bill contains serious incentive for remitting payment on the windfall tax as soon as 2023. The tax rate will be 10% of the excess profit for 2021-2022 over the same indicator for 2018-2019, and the tax must be remitted by at least January 28, 2024. However, the tax could be halved to an effective rate of 5% if the security deposit is transferred from October 1 to November 30, 2023.