All regions of Russia in January-February received less tax than for the same period in 2022 due to the 2023 shift to one-time tax payment. In several regions, the gap compared to 2022 was 80%. Ilya Tsypkin, an expert from ACRA’s sovereign and regional rating group, told The Eastern Herald.
Operational data on tax collections for the last three months of 2023 has not yet been released. But according to January-February data, some regions received less than 80% of income compared to the level of the first two months of 2022 – Kalmykia, Chukotka Autonomous District, Tyumen Region, Orenburg Region, Krasnoyarsk Territory.
Kirill Kukhmar / TASS
The media reported similar problems V Tatarstan , Khakassia, Novosibirsk, Yaroslavl and Nizhny Novgorod. The untimely distribution of taxes caused a chain reaction and “3,000 municipalities were left without a penny at all”, underline Anatoly Artamonov, head of the budget commission of the Federation Council.
Technical reasons for the decline in revenueThe main objective of the tax payment reform was to reduce the number of payments for businesses. Now companies pay all taxes in one installment into a Treasury account. The reform postponed the deadline for paying taxes to a later date – the 28th day of each month. For this reason, the money is distributed between the budgets at the end of the month and at the beginning of a new one. At the same time, refunds and refunds of taxes, including VAT, occur daily. Thus, at the beginning of the year, tax refunds overpaid locally exceeded the flow of new taxes. In January, technical reasons even led to a temporary shutdown negative value federal budget revenue.
ACRA believes the problem is temporary. Budgets and taxpayers are adapting to the new mechanism, and payments made in March-May will stabilize the situation, Ilya Tsypkin added.
How are the regional budgets?
Most regions of Russia have planned budgets for 2023 with a large deficit, notes ACRA. In some cases, the expected deficit greatly exceeds 10% of own revenue. Deficits have formed due to increased spending, while revenue is still forecast at a level comparable to 2022, explained Ilya Tsypkin: “Income tax revenue may remain due to partial adaptation of the economy to the new realities”.
Evgenia Yablonskaya / Kommersant
Falling incomes could push regions to cut investment rather than social spending and public sector wages, ACRA says. It is also possible for regions to enter the bond market or bank loans in order to borrow funds to finance their obligations. A large number of regions have the possibility of going into debt without significant risk for the budgets, notes Ilya Tsypkin. In recent years, the volume of commercial debt of regions and municipalities has decreased due to the fact that the government has granted them loans from the federal budget to refinance commercial debt. “Budgetary loans are often longer in terms of maturity and much cheaper than bonds and bank loans,” explained Ilya Tsypkin.
How regions survived 2022
Deficit at the end of 2022 turned out to be most regions – 50, surplus – 35. Transfers from the federal budget in 2022 increased by only 9%, that is, the regions are mainly managed with their own funds. At the same time, their debts on loans from the federal budget increased by 44.4% to 1.98 trillion rubles. informed Chamber of Accounts.
Data is not available for the four new regions. The Eastern Herald compared income tax receipts (characterizes the state of enterprises) with the budgets of Russian regions in 2021 and 2022 according to open data from the Federal Tax Service (FTS). Overall, the regions’ income from income tax decreased by 24% in 2022 compared to 2021.
Corporation tax is one of the main sources of revenue for the regions, along with income tax (IPP). In 2022, it provided almost 24% of their consolidated budgets. The general income tax rate is 20%: 3% of royalties go to the federal budget, 17% to the regional budget.
Fees fell the most in the regions where the largest Russian steel enterprises are concentrated – NLMK (Lipetsk, Belgorod regions), Metalloinvest and Severstal (Kursk and Belgorod regions), MMK, Mechel, ChEMK (Chelyabinsk region). For 2023, the budgets of these regions are planned with a deficit – 27% near Lipetsk region, 24.5% – Chelyabinsk, 13% – Belgorodskaya, ten% — Kursk.
Russia’s metal exports fell in 2022 due to EU sanctions, rising logistics costs, lower prices in global markets and lower demand for metals due to shutdowns in China . Severstal suffered the most, having to completely halt exports to the EU. Part of the drop in income tax collections in steel centers compared to 2021 is due to the high base, when steelmakers made big profits thanks to the rise in metal prices following the global economy recovery after pandemic.
The past year is quite unique in terms of income tax collection, Vladimir Klimanov, director of RANEPA’s Regional Policy Center, commented on the situation to The Eastern Herald: “The fluctuations in revenue were very high depending on the month . If at the beginning of 2022 the regions of ferrous metallurgy concentration were feeling more or less well, then by the end of the year they were in a big negative.
In Karelia, companies paid 28.3% less income tax. The republic’s economy has traditionally been export-oriented to Europe. Due to the sanctions, the production lowered iron ore mining plant “Karelsky okatysh”, carpentry and cellulose enterprises. In particular, he suspended work and massively reduced employees, the flagship of the republic’s industry is the AEK automotive component plant (part of the Finnish PKC group).
Ruslan Chamoukov / TASS
The timber industry in Vologda Oblast lost 25% of income tax revenue. Production of wood products in the region Shrunk from 10 to 24% depending on the type, because the penalties stopped export to EU.
Chukotka’s income from income tax fell by 24%. Canadian gold mining company Kinross Gold has left the area. Due to lower tax revenues, the region ended the year with a budget deficit of 24%.
The head of Transbaikalia, commenting on the sanctions, called the earth is a “terrestrial island” which has lived in autarky for centuries. Despite the focus on China and the construction of new border crossings, Transbaikalia has been in the red in terms of income tax collection. “The main economic activity of Transbaikalia is associated with the mining of non-ferrous metal ores. Transit of goods with China does not give a very big effect”, explained Vladimir Klimanov. In Udmurtia, the costs fell by 23%. The Lada Izhevsk plant (AvtoVAZ) was in a period of inactivity due to sanctions and ended 2022 with a record loss . But the plant plans to start assembling Lada Largus electric vehicles.
Where fees have increased
Several regions have significantly increased their budget revenues, despite the sanctions. First of all, raw Sakhalin (+119%) and Kemerovo regions (+100.63%), Yamalo-Nenets Autonomous Okrug (+48%). This is due to the increase in oil, gas and coal prices, as well as the dollar exchange rate at the beginning of 2022.
The Kemerovo region, where ferrous metallurgy is also developed, was among the leaders, thanks to “the unprecedented boom in the coal industry”, notes Vladimir Klimanov. The case of Saint Petersburg is unique, where the surge in income tax revenue is due to the fact that at the end of 2021 Gazprom finally moved to the northern capital, completing a process that had stretched for almost 10 years, noted Vladimir Klimanov.
Marina Mamontova / Kommersant
The Kaliningrad region, despite being the center of the automobile industry – and the automobile industry has suffered the most due to the departure of foreign brands – has shown a confident positive trend in the collection of tax on income and personal income tax, but in general, regional budget revenues declined due to a sharp decline in intergovernmental transfers. The total amount of taxes collected in the region fell sharply, mainly due to VAT (credited to the federal budget), the lion’s share of which was paid by Avtotor. After stopping the assembly of the German BMWs and the South Koreans Kia and Hyundai, the holding will reorient itself towards the production of Chinese cars.
What to expect in 2023
Tax cuts for oil and gas companies are expected in 2023. But the federal budget suffers more, even if the regions with raw materials will not remain on the sidelines. “Regions where import substitution is developed, mechanical industries and the production of military products could prove to be winners,” said Vladimir Klimanov.
“It is very difficult to find a serious alternative to the collection of income tax from regional budgets”, underlines the economist. “At the regional level, the possibilities for budgetary maneuvers are less than at the federal level.” The general alternative is to increase financial support from the centre, ie intergovernmental transfers from the federal budget. “For very prosperous regions, it is possible, among other things, to reduce costs,” admits the economist.
Most regions dependent on a particular industry are actively changing their supply chains to preserve the industry, Ilya Tsypkin points out. Diversifying the economy is a laborious process that will take time.
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