Cashing Out of Russia Will Come With New Tax on Foreign Business

(Bloomberg) -- Russia has another surprise for the foreign companies preparing to pull out of the country with a plan for a new levy on top of demanding they sell at a 50% discount and get government permission to leave.

A windfall tax being rolled out in Russia will also apply to those lining up an exit deal, according to people familiar with the plans. It could alternatively factor into the price negotiated as part of the divestment, they said.

There will be no exemption because the budget needs the money, the people said, speaking on condition of anonymity to discuss matters that aren’t public. Russia’s Finance Ministry didn’t immediately respond to a request for comment on Wednesday.

Faced with an exodus of foreigners after the invasion of Ukraine last year, the Russian government moved to exact a higher cost by means of what it called a “voluntary contribution” to the budget and requiring a discount of companies from countries it deems unfriendly. A queue of candidates to leave Russia includes the likes of Volkswagen AG and lenders UniCredit SpA and Raiffeisen Bank International AG.

But as public finances deteriorate sharply while the war drags into its second year, Russia is enacting additional measures that spare few parts of its economy. With the exception of the oil, gas and coal industries, the windfall tax now aims to claw back an extra 300 billion rubles ($3.7 billion) by charging 10% on excess profits earned in 2021-2022 compared with the prior two years.

Though the levy will only go into effect from 2024, companies have the option to pay it this year at half the rate. Businesses whose profit exceeded 1 billion rubles are subject to the tax.

The main burden of the new tax will fall on businesses in chemicals, metals and mining — except for coal — as well as banks, according to Dmitry Polevoy, economist at Locko-Invest in Moscow. 

Should all companies liable for the tax opt to pay early at a discount, Russia will collect 300 billion rubles already this year, allowing it to spend the amount without increasing the fiscal deficit, he said.

Hard Exit

Having to cede more money to Russia will complicate what’s already become a cumbersome process for companies forced to leave in response to sanctions following President Vladimir Putin’s invasion of Ukraine in February 2022. Although the likes of McDonald’s Corp. and Ford Motor Co. have cut ties and shuttered locations, others such as BP Plc and Philip Morris International Inc. have faced delays and legal barriers.

As Russia’s approach takes shape this year, it’s also seeking a way to curb the impact on the ruble by setting a limit for hard-currency purchases by foreign companies exiting the country.

But it’s the pressure on the budget that appears to dictate the latest moves.

Following new export restrictions that cut into oil and gas proceeds for the Kremlin, the financial toll of the biggest conflict in Europe since World War II means it’s having to act swiftly to mend the budget.

At 4.77 trillion rubles, the fiscal shortfall as of April 17 is already almost 40% wider than its full-year target for the deficit. Spending since the beginning of the year is nearly double the revenues, according to the latest Finance Ministry data.

Russia’s budget is forecast to run a deficit of 2% of gross domestic product this year. If the volume of asset sales by foreign companies approaches last year’s total of $15 billion to $20 billion, the state may raise as much as an additional 150 billion rubles in 2023 from the mandatory contribution it imposed, Bloomberg Economics estimates.

The Finance Ministry has said it plans to ease the pace of spending growth and repeatedly assured it’s on track to keep this year’s budget shortfall within the target. Still the latest figures show expenditure accelerated in April, almost matching what it spent for the month of March as a whole.

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