Russia’s sets excise tax for steel, changes tax calculation for raw materials

Monday, 29 November 2021 17:54:07 (GMT+3)   |   Istanbul

The government of Russia has recently decided to levy the previously valid export tax for steel products, but to apply the new set of rules for steel mills in order to increase budget revenues. Starting from early 2022, there will be an excise tax for crude steel production, coupled with a change in severance tax calculation. As a result, steel mills in Russia will still be carrying some additional costs despite the export duty cancellation and this time the restriction will apply to production volumes and not just sales.

According to sources, Russia has approved the imposition on the 2.7 percent excise tax for blast furnace-based crude steel production, which will be calculated from the monthly average export sales price for steel slab. The excise tax will not be valid if the price goes below $300/mt. “It will be charged on the crude steel production volume, not finished steel sales,” a steel producer told SteelOrbis. Some companies, specifically in the machinery segment, will be exempt from the tax payment.

As for the companies based on electric arc, induction and open-hearth production and who have not less than 80 percent scrap usage, the excise tax will be calculated as an average export price for billet at southern ports, multiplied by the monthly average exchange rate, cleared of the monthly average delivered price for HMS scrap in the Ural district, minus RUB 12,500 as the historical billet-scrap spread, and cleared of 50 percent of the average costs of alloying additives. Afterwards the figure should be multiplied by a royalty interest coefficient of 30 percent. It is worth mentioning that the cost for EAF based producers in the mentioned formula can be at RUB 1,000 at the highest and any amount above this will not be paid by the company.

As for raw materials, it has been decided to set the MET rate for iron ore at 4.8 percent of the average global price for 62 percent Fe content, based on the Chinese market. The rate for coking coal is now set at 1.5 percent of the average price in accordance with FOB Australia prices for premium quality.

As a result, Russia-based steel producers will be carrying additional costs and will have lower margins. However, the general market reaction to this news is better than the attitude to the previously valid export taxes. “Sure it is another restriction but we are used to this. It will now affect our local sales as well and the production calculations need to be handled even more carefully. But it will hardly have the same effect on exports especially compared with the previous export tax,” a steel producer told SteelOrbis. 

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