Following the announcement regarding the amendment (federal law No. 85-FZ of May 17, 2007) to the Russian tax code under which all ferrous metal scrap operations will once again be subject to VAT from January 1, 2008, several Russian steelmakers have expressed their support for the domestic scrap processors' bid to completely abolish VAT on scrap.
In an open letter to the Russian Secondary Resources Association, NLMK has stressed that only the complete abolishment of VAT on scrap will make the Russian scrap market transparent. NLMK adds that such a move would completely eradicate the phenomenon of irrational scrap price rises which currently exists in the market due to the fact that half of the scrap processors work with VAT while the other half works without VAT.
In another such open letter, Metalloinvest Holding has pointed out that since scrap is a strategic raw material for EAF-based steel mills and since any instability in the scrap market affects the end price of finished steel products, only complete abolishment of VAT on scrap can ensure stability in the market, make the scrap industry transparent and support the further development of the Russian scrap industry.
Commenting on the issue to SteelOrbis, Mechel stated that the cancellation of VAT on scrap will naturally reduce the primary cost of steel production, which in turn will make it possible for the Russian steel producers to up their net profits.