Putin Aide Proposes $7.5 Billion Tax Hike for Mining, Chemicals Sectors

The top economic adviser to Russian President Vladimir Putin proposed raising taxes on mining companies, including MMC Norilsk Nickel PJSC and Alrosa PJSC, among the largest producers of nickel and diamonds.

Additional budget revenues are needed to help pay for Putin’s promises to boost spending after his re-election this spring, according to the letter, which was addressed to Putin and sent from Andrey Belousov, the Kremlin’s top economic aide.

The tax proposal could raise as much as 500 billion rubles ($7.5 billion) a year, according to the letter which calculated rates based on profits from 2017. It would also affect chemical and fertilizer producers, the letter said. Spokespeople for the Kremlin and the government didn’t immediately respond to requests for comment.

Mining and other non-energy companies have benefited from a rally in commodity prices and drop in the value of the ruble, but aren’t paying taxes on this “excess income,” according to the letter, which was obtained by Bloomberg News.

Putin’s one-word note on the letter didn’t give any further instructions and there was no indication he’d issued any instructions to the government to act on the proposal. People close to the metals and mining companies said they hope to be able to avoid any major tax increases.

Mining Profits

Putin’s signature on the letter was dated July 28, before concern over further U.S. sanctions pushed the ruble and Russian markets sharply lower. Still, Russian miners tend to benefit from a weak ruble, since they sell much of their output to international markets in dollars, while their costs are based in rubles.

Russia’s energy giants, which are key sources of government revenue, have long lobbied for higher taxes on other sectors, particularly mining and metals. Companies in those industries have so far parried those efforts, arguing that their businesses shouldn’t be taxes as heavily as the hugely profitable oil and gas producers.

According to the letter, Norilsk Nickel, Alrosa and petrochemical group Sibur Holding PJSC could pay the highest tax.

The list of companies named in the letter has a few notable omissions. United Co. Rusal, which is struggling under the weight of U.S. sanctions, was not named. Neither was gold miner Polymetal International Plc or fertilizer group Eurochem Group AG.

(Adds additional detail from the letter throughout.)

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