The Ministry of Industry and Trade proposes to adjust the calculation of the excise tax on steel by including a deflator coefficient. The instruction to study the issue is contained in the road map of the metallurgy development strategy. However, the Ministry of Finance is against such adjustments, believing that this could reduce the amount of already planned budget revenues. In addition, ministries have been instructed to consider the transition to using quotes from Russian agencies when calculating the mineral extraction tax on iron ore.
The Ministry of Finance and the Ministry of Industry and Trade have been instructed to consider the possibility of optimizing the calculation of excise duty on liquid steel, according to the roadmap for implementing the development strategy for the metallurgical industry, approved by Deputy Prime Minister Denis Manturov last week (available at Kommersant). Thus, when calculating the export price of a slab, it is proposed to adjust it monthly by a deflator coefficient. Theoretically, this should lead to the fact that the price will decrease due to inflation, which will result in a reduction in the excise tax. The ministries must submit a report to the government on this issue.
Currently, the excise tax is calculated as follows: the rate is 2.7% of the average monthly export price for steel slabs on a FOB basis. However, if the ruble price of the slab is below 30 thousand rubles. per ton, no excise tax is paid. The ruble cut-off price was introduced in the fall of 2022 at the initiative of metallurgists; before that it was $300 per ton, and due to the strengthening of the ruble in the summer of 2022, companies were forced to pay excise tax even with a significant drop in world steel prices.
The Ministry of Industry and Trade responded to Kommersant's inquiry with the words of Deputy Head of the Ministry Viktor Evtukhov in an interview with Interfax. He noted on November 21 that when forming a position on adjusting the calculation of the excise tax on steel, “we will take into account the tasks of optimizing the tax burden on the industry.”
The Ministry of Finance told Kommersant that the budget for the next three years has already been adopted, and when planning its revenues, the deflator coefficient was not included. “Introducing such changes to the Tax Code is now impossible and is not being considered, since this will lead to a decrease in revenues compared to those taken into account in the budget,” the ministry said. At the same time, the Ministry of Finance admitted the possibility of optimizing the excise tax on steel, hinting at the possibility of its growth: in the “Main Directions of Budget, Tax and Customs Tariff Policy for 2024 and for the Planning Period 2025–2026” published on September 28, it was stated that the profitability of exports of semi-finished products was in the first half of the year 37%, which is significantly higher than the 2022 level (12%). The increase in profitability is facilitated by higher prices for semi-finished steel products: the average slab price in July-December 2022 was $442 per ton, and in the first half of 2023 - $562.
A Kommersant source among metallurgists believes that it would be logical to take inflation into account when calculating the excise tax on liquid steel. This could be done by indexing the cutoff price. Kommersant’s interlocutor recalls that since it was set at 30 thousand rubles in August 2022, metallurgists’ costs for labor, electricity, repairs, ore, fuel, and scrap have increased. The key rate of the Central Bank also increased, which will negatively affect the demand for metal. The Kommersant source notes that the weakening of the ruble exchange rate also negatively affects the results of metallurgical companies, despite the fact that it would seem to lead to an increase in export foreign currency earnings. A number of companies do not export and the rising exchange rate leads to an increase in production costs, while other companies have significant foreign currency obligations.
Also, the Ministry of Industry and Trade and the Ministry of Finance have been instructed to consider the transition to quotes from Russian information and analytical agencies when calculating the mineral extraction tax on iron ore. Currently, one of the indices calculated by the Singapore Exchange is used for these purposes - SGX TSI Iron Ore CFR China (62% Fe Fines). The implementation period for this order is 2026–2030.
In Russia there are agencies that publish iron ore quotes - Metals & Mining Intelligence (MMI), Rusmet, Metallplace, Viktor Evtukhov told Kommersant. MMI Business Development and Consulting Practice Director Ilya Kolomeets told Kommersant that the agency publishes about 20 different quotes for the iron ore market (pellets, concentrate, sinter ore) both for supplies to the domestic market and to China. According to him, MMI has already completed the task of import substitution in terms of domestic and export market indicators. The agency is also ready to offer its own quotation methodology on the domestic market for contracts and tax calculations.
Various deflator coefficients have long been used in tax legislation, but are aimed at taking into account internal price dynamics, says independent tax expert Boris Lutset. Therefore, he notes, it is not entirely clear how this proposal will be applied to the export price of the slab. The deflator can be either larger or smaller than one, as is the case in coal, he adds, so its use can either reduce the size of the excise tax or increase it. The Ministry of Finance will agree to adjust the calculation of the excise tax on liquid steel only in a form that guarantees that budget revenues will at least not decrease, Mr. Lutset believes, recalling that the Ministry of Finance has already expressed an opinion about the insufficient level of rent withdrawal in the mining and metallurgical industry.