21 Jul 2023 11:25

State Duma passes law on windfall profit tax

MOSCOW. July 21 (Interfax) - The State Duma has passed the law to introduce a tax on past windfall profits in Russia in the third reading. The tax is expected to generate about 300 billion rubles of additional revenue for the federal budget.

The bill (No. 379248-8) on introduction of a windfall tax was submitted to the State Duma on June 13, simultaneously with amendments to the Tax Code (No. 379177-8) and Budget Code (No. 375105-8).

The document establishes a one-off tax for large companies whose average profit for 2021 and 2022 was more than 1 billion rubles. The tax rate will be 10% of the amount of excess profit for 2021-2022 over the same figure for 2018-2019. The tax must be paid no later than January 28, 2024 and its amount is calculated by taxpayers themselves. The amount of tax can be halved to an effective rate of 5% if a deposit is paid between October 1 and November 30, 2023.

The tax will not apply to companies established after 2020, to small and medium-sized businesses, to organizations paying the single agricultural tax, or to companies in the oil and gas sector and coal companies, since additional tax exemptions for mineral extraction tax and a fuel damper have already been provided for them this year.

The government introduced amendments for the second reading of the bill. These would exclude from the list of taxpayers those companies that in 2018 and 2019 had no sales revenues. "That is, they, by and large, did not do any business in 2018-2019. Accordingly, it is being proposed that such organizations not be recognized as payers of the windfall tax," Deputy Finance Minister Alexei Sazanov has said.

Banks and non-credit financial organizations involved in bankruptcy prevention measures as of January 1, 2023 with the participation of the Central Bank of Russia or the Deposit Insurance Agency will not pay the tax. "This is due to the fact that the Central Bank's money is being used to reorganize these organizations. Payments are being made from the DIA to insured persons. This exception was made to avoid the need for additional funding by the Central Bank for the payment of this tax," Sazanov said.

Also exempt from the tax are property developers that are implementing projects with citizens' funds through escrow accounts, and did not pay dividends in 2021-2022. "This is because some project companies are subject to the tax - they have the sort of technological, production cycle that they first collect money from citizens and then sell apartments, in subsequent periods, when the houses are built. They defer recognition of revenue and profits, so for them this is not a tax on windfall profit, but an elevated profit tax," Sazanov said, adding that the Deputy Finance Minister said, adding that this would apply to small project companies.

"For those companies whose assets in 2021-2022 grew more quickly than profit tax, and provided that those companies did not pay dividends for 2021-2022, then for such companies the tax is limited to half the 2022 taxable income in order to support those companies that developed production, reinvested money and did not pay dividends," Sazanov also said.

As the bill was being finalized, proposals by the Russian Union of Industrialists and Entrepreneurs on wording in the event an updated declaration or additional tax assessment is filed were taken into account. In the event of an additional assessment based on the results of a tax audit, the taxable income for profit tax purposes would increase by an amount equal to the additional tax assessment and a coefficient of 5. If a taxpayer submits an amended tax return for 2021 or 2022, the profit for assessing windfall tax is calculated on the basis of its indicators.

The adopted amendments also clarify the procedure for calculating the arithmetic mean of profit for organizations created through reorganizations or transformations. "The arithmetic mean profit for the corresponding years preceding the reorganization is determined on the basis of the data of the reorganized organization, the successor of which is the newly created organization," the amendments say.

The Finance Ministry has revealed how the windfall tax burden would be distributed among the top 50 taxpayers. "If we take the top 50 payers, then 20% will be paid by enterprises in solid minerals extraction, 19% by mineral fertilizer producers, 13% by metallurgical companies, and 12% by wholesale and retail trade enterprises, I mean of the total amount of payments by the top 50 payers, and 9% by banks and 5% by all other sectors - petrochemical enterprises, power generation, construction companies, manufacturing, logistics," Sazanov has said.

"Regarding the number of payers, the total number will be about 2,500, and this is less than 3% of the total number of organizations," he said.

The windfall profit tax (deposit on the tax) will be paid completely into the federal budget.