Putin to Restore Amnesty for Businesses Returning Capital

Russia should scrap the 13% profit tax on funds repatriated from abroad and renew an amnesty from penalties for businesses returning capital, as Washington moves towards tougher sanctions, President Vladimir Putin said late Monday.

Amid huge capital outflows in 2014, deteriorating relations with the West over the Ukraine conflict and weak oil prices, Moscow offered the amnesty for those returning capital to Russia, CNBC reported.

The amnesty, which expired in mid-2016, scrapped responsibility for past taxes and currency violations for those who declared assets abroad. But few agreed to take part in the amnesty.

Russian Finance Minister Anton Siluanov said on Friday that his ministry was proposing such an amnesty be restored in 2018 for at least a year.

Speaking at the meeting with the leadership of the Russian parliament, Putin said he had two proposals which he had not previously spoken about publicly. “The first is to extend the amnesty timeline, I mean external restrictions are not easing, but, on the contrary, tending to rise,” he said.

US President Donald Trump signed into law a new package of sanctions in August. One provision asked the US Treasury Secretary to submit a report on the impact of expanding sanctions to cover Russian sovereign debt, with an outcome expected as early as February.

Putin’s second proposal was to scrap 13% taxes for transfers of capital to Russia by businesses.

Among other tools to encourage the return of money will be a special bonds program. Russia plans to adjust the terms of a sovereign Eurobond issue next year so that businesses can use the bonds to repatriate funds in a way that would protect them from being damaged by new sanctions on Moscow.

Reuters reported earlier this month that wealthy Russians facing the prospect of targeted US sanctions next year had floated the idea of a special treasury bond to help create favorable conditions for them to bring their cash home.

 Increase in Forex Buying

The Russian Finance Ministry plans to increase purchases of foreign currency for its reserves next year, reducing ruble volatility in a presidential election year, the Finance Minister Anton Siluanov said on Tuesday.

After two years of recession and a draining of reserves amid a sharp drop in the price of oil, Russia’s key export, the finance ministry has decided to replenish coffers and insulate the ruble by setting a budget rule.

According to the rule, the finance ministry will buy dollars and other foreign currency when Russia’s crude blend Urals trades above $40 per barrel, the level factored into the budget. The higher the oil price, the bigger the forex purchases would be.

Siluanov said the finance ministry could spend around two trillion rubles ($35 billion) on foreign currency next year if Urals prices are at $54-55 per barrel. Urals crude last traded at $64.35 per barrel.

“This would more than offset the envisaged reserves spending next year,” Siluanov said, adding that his ministry would increase foreign exchange purchases next year to level of up to 70% of non-oil and gas budget revenues from around 30-40% at present.

Speaking to reporters, Siluanov said the increased foreign currency purchases would reduce the ruble’s vulnerability to volatility on capital markets in 2018.

Analysts at ING had predicted the finance ministry would increase its foreign currency purchases to more than $27 billion in 2018 from around $15 billion in 2017.

Siluanov said he expected the ruble, trading in a range between 57 and 59 versus the dollar for a few weeks, to stay at these levels in 2018 if oil prices hover near $55 per barrel. The ruble forecast is valid if “there are no new additional sanctions and nuisances due to external restrictions,” he said.

Russian authorities largely dismiss risks of new US sanctions, which could be imposed in 2018 and could ban purchases of Russian debt, but are still bracing themselves for possible shocks in 2018.

 Budget Deficit

Russia is likely to run a smaller-than-expected budget deficit this year as some of the planned spending has been postponed until next year, Siluanov said. The 2017 deficit is now seen at 1.5 trillion rubles, which accounts for 1.6% of gross domestic product, he said.

The earlier approved budget plan envisaged a budget deficit of 2.1% of GDP. The budget deficit target for 2018 stands at 1.3% of GDP.

Part of the budget shortfall next year will be covered by Russia’s No.1 state-owned lender Sberbank that is expected to channel around 130 billion rubles worth of dividends to the budget, Siluanov said.