The Russian government has found another way to replenish the budget next year: the Ministry of Finance intends to increase the mineral extraction tax (MET) for the country's largest diamond mining company, ALROSA, once. The tax initiative will make it possible to allocate at least 19 billion rubles to the budget, but this decision will directly affect the investment attractiveness of the company, since under such conditions ALROSA is unlikely to be able to pay dividends. The Russian government has done a similar stunt with Gazprom before. Kommersant writes about this with reference to interviewed analysts.
The state's share in ALROSA is 33%. In addition to the federal government, the authorities of Yakutia (25%), 8 districts of Yakutia (1% each) have shares in the company, and 33.9% are in free float on the stock exchange. The Ministry of Finance is preparing amendments to the tax code specifically for ALROSA: the document stipulates a minimum share of state ownership of 33% – exactly the same amount for the authorities in the largest diamond mining enterprise. The same amendment, for example, will avoid raising taxes for AGD Diamonds, which accounts for about 10% of domestic production.
At the same time, the tax initiatives of the authorities may not be limited to a one-time increase in the MET: the budget committee of the State Duma approved amendments that will centralize 46% of the MET on diamonds in the federal budget from March 10 to May 10, 2023. Prior to this amendment, all MET tax revenues from ALROSA went to the regional budget, but now this system will be temporarily disrupted. The publication notes that ALROSA's annual expenses for severance tax were estimated at about 8% of revenue, however, it is not possible to estimate the current level of expenses, since the company has ceased to publish reports.
Analysts agree that in terms of investment attractiveness, ALROSA only loses from government decisions. Sinara investment bank estimates RUB 19 billion at about 30-40% of the company's Free cash flow (FCF) in 2022 – this is too large an amount not to affect dividends in any way. Analysts from My Investments believe that the situation could be even worse if the 19 billion rubles of the MET is not the total tax increase, but only the federal part. If the regional parts grow multiple times, a one-time increase in the MET can reach 41 billion rubles.
“According to our estimates, ALROSA’s FCF for 2022 will amount to RUB 58 billion. With the payment of 100% FCF in the form of dividends, the federal budget would receive 19 billion rubles, and the government of Yakutia (25% of shares) and uluses (8% of shares) would receive another 14.5 billion rubles. and 4.5 billion rubles. accordingly,” they write.
Boris Sinitsyn, an analyst at Renaissance Capital, notes that such initiatives will almost double the effective tax rate, from 8% to 14-15%. In the short term, he believes, the company will cope with this situation, but the investment attractiveness of the company will suffer, as stock market participants will assess the risks of maintaining the growth of the tax burden in the future.
The war with Ukraine, Western sanctions and the outflow of the population had an extremely negative impact on the Russian economy and state budget revenues. With revenues falling, the Treasury approved the implementation of several tax changes that should increase the burden on the country's leading industries: oil and gas , coal , chemicals, and now diamond mining. Moreover, such initiatives hit the Russian stock market: in the summer, a similar “tax maneuver” was already carried out with Gazprom, with a one-time increase in the MET by a total of 1.8 trillion rubles. in 2023–2025, despite the fact that the company paid the increased MET in 2022 as well.
The sudden increase in the tax burden called into question the payment of the company's record dividends, which led to a sharp collapse in the value of shares on the Moscow Exchange. However, the company later decided to pay a dividend, which allowed the stock to rebound and investors to get their money.