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Russia’s potential windfall tax may hit profitability of metal and chemical companies

According to the agency, introduction of a higher tax burden may force companies to choose either lower dividend payouts, reduce future capex or adopt a higher leverage tolerance
Russian Industry and Trade Ministry's building Stanislav Krasilnikov/TASS
Russian Industry and Trade Ministry's building
© Stanislav Krasilnikov/TASS

MOSCOW, August 16. /TASS/. The implementation of the initiative on taking out additional revenues from metal and chemical companies in Russia may affect their profitability, Fitch rating agency said in a review on Wednesday.

"The windfall tax on certain metals and mining and chemicals companies reportedly being considered by the Russian government will likely put pressure on profitability and reduced available cash flows," Fitch says.

According to the agency, introduction of a higher tax burden may force companies to choose either lower dividend payouts, reduce future capex or adopt a higher leverage tolerance.

At the same time the initiative will reduce disparity between the tax burden on natural resource companies and tax burden oil and gas companies, boosting government tax revenue, Fitch notes.

Earlier, sources in the industry confirmed to TASS that Presidential aide Andrey Belousov put forward the idea of taking out as much as 513.7 bln rubles ($7.6 bln) from Russia’s top mining, chemical and petrochemical companies. The proposal is based on the fact that the tax rate in these industries is lower than that of oil companies, and the profitability is higher. The funds would be used for implementation of Putin’s new package of decrees revealed this May.

Sources in the industry told TASS that the Russian Ministry of Industry and Trade on August 10 will hold a meeting to discuss the idea of increasing financial burden on companies.

According to the sources, the discussion might touch upon the revenues of such companies as Norilsk Nickel, NLMK, Alrosa, Polyus Gold, Sibur, Uralkali, Severstal, Metalloinvest, Mechel, Phosagro, and others.

According to the estimates of the Russian Union of Industrialists and Entrepreneurs, the capitalization of the Russian stock market as a result of these measures may fall by 3 trillion rubles ($45 bln). The organization also warned that Belousov's initiative would negatively affect the country's investment attractiveness.