Russia’s new fish taxes

08 Nov 2017
Russia's new fish taxes

Russia’s Ministry of Agriculture intends to boost the natural resource fee, presenting the industry with potential difficulties

The forthcoming hike in taxes the fishing industry in Russia is expected to become subjected to is going to be the largest in the modern country’s history, according to the recent reports.

Russia’s Ministry of Agriculture intends to boost the so-called natural resource fee - a special tax fishing companies are obliged to pay for the right to harvest fish and seafood within the country’s territorial waters. The recently posted amendments to the federal tax code indicate the increase in taxes for catch of 21 fish species in the Far Eastern region and six species in the northern region.

The levy will rise from Rub3000 (US$52) to Rub26,500 (US$462) per tonne of shrimps, from Rub450 (US$8) to Rub1800 (US$31) per tonne of herring, and from Rub3600 (US$62) to Rub10,800 (US$188) per tonne of humpback salmon.

In 2016 Russia’s fishing industry paid Rub463 million (US$8.1 million) as the natural resource levy, and as it was estimated as soon as new taxation is introduced, this figure will more than double. The schedule revealed by the Ministry proposes to introduce the new taxes gradually over the period from 2020 to 2022.

An important question now is whether or not the government plans to keep in place the tax breaks for those fishermen who are delivering their products to the domestic market only.

Analytical agency Russian Business Consulting has estimated that the combined amounts levied from fishing operators would be 1.5 higher in 2016 without the breaks. For the fishermen the breaks allow to them pay only 15% of the levy when they are not exporting any products at all, and delivering their entire production solely to the domestic.

However, the Ministry repeatedly expressed its intention to close this loophole. The main reason why the Ministry of Agriculture wants to cancel the breaks is because reality is that the system doesn’t work.

It turns out that to apply for the tax breaks fishermen need only to take their catches to the port of call and register them it there. As soon as this is done, the company is free to export fish wherever it wants. This is the main reason why the share of export of raw fish has not been going down in recent years, in spite of all efforts made by the federal authorities.

In 2016 Russia exported 1.9 million tonnes of fish, or 40% of the total catches, the country’s Federal Customs Service estimates.

German Zverev, President of the All-Russian Association of Fish Breeders, Entrepreneurs and Exporters (VARPE) said that the Russia’s fishermen will have no choice but to adjust the prices for their products, giving the extent of the new levies. As the result, he estimated, the price of fish at the domestic Russian market will rise by at least 10%, while the proportion of taxes incorporated in the consumer price will jump from the current 1.8% to nearly 10%.

It is believed that the government is setting its sights on the taxation of the fish industry because it offers attractively high margins for fishing companies. Russia’s State Statistical Service has estimated that in the first half of 2017 the country’s fishermen earned a net profit of Rub41.70 billion (US$727 million), up by 4.20% compared to the same period of 2016, and the profitability index on average was 28%, so fishing appeared to be one of the most lucrative businesses in Russia.

MP Igor Zubarev, who sits on the special committee on utilisation of agricultural and natural resources in the Council of the Federation, expressed fears that the new taxation on the fishing industry could adversely affect fishing businesses, so that the amount of cash they have available for fleet renewal and building new capacity will decrease.

Altogether he estimated the new size of the natural resource levy, together with the increase in other taxes in the industry and the absence of the tax breaks, would jointly draw up to Rub7 billion (US$122 million) from the Russian fishing industry, presenting it with a serious challenge.

At the same time, Igor Zubarev said, the system is far from perfect, because in accordance to Russian legislation the natural resource levy must be paid in advance at the beginning of the year, and in the event of problems with fish stocks or conditions that prevent a company from catching the expected volume of fish, this levy payment is not refundable.

So far Russia’s Ministry of Agriculture has refrained from commenting its plans on the new levies, saying only that it intends to take into account the views and opinions of the fishing industry, and will amend the bill as required.