RUSSIA TO TAX BANK DEPOSITS TO FUND CORONAVIRUS / THE FINANCIAL TIMES

Russia to tax bank deposits to fund coronavirus package

Levy will hit pensioners and contrasts with rescue measures of other countries

Henry Foy in Moscow


Russian president Vladimir Putin pledged that just ‘1 per cent’ of depositors would be affected by his decision to impose a tax on interest earned from deposits worth more than Rbs1m © AP


Measures introduced by Russian president Vladimir Putin to soften the economic blow of the coronavirus pandemic will be partly funded by a levy on bank deposits, tapping nest eggs held by the country’s pensioners and middle-class households.

The Kremlin’s decision contrasts with other governments, which have announced large rescue packages to help companies and taxpayers weather a sudden loss in revenues or incomes but in doing so have refrained from increasing taxes.

Russia has outlined handouts to families, tax holidays for small businesses and reductions in employers’ state contributions.

Mr Putin announced the scheme in a solemn national address on Wednesday that signalled a shift in his attitude towards the spreading respiratory disease caused by the Sars-Cov-2 virus.

After insisting for weeks that the disease was “under control,” the Russian leader said it was “impossible to stop” the virus spreading in the country.

Mr Putin pledged that just “1 per cent” of depositors would be affected by his decision to fund the measures through a tax on interest earned from deposits worth more than Rbs1m ($12,900).

But the measures will affect millions of Russians, including pensioners using savings to supplement small state pensions. At the start of this year, 55.3 per cent of all Russian bank deposits were worth more than Rbs1m, according to data from the country’s Deposit Insurance Agency, which covers 234.2m depositors, both individuals and companies. Previously, deposit interests were exempt from taxation.

The DIA statistics imply that “a large amount of deposits will be taxed”, said Luis Saenz, co-head of equities at BCS Global Markets in London, adding that “it is not clear how data will technically be gathered”.

The measure, which will impose a 13 per cent tax on interest earned on the deposits, comes despite two years of budget surpluses in Russia, a national wealth fund worth about $150bn and foreign reserves of $570bn. Svetlana, an 82-year-old pensioner from Moscow who called the tax “unjust”, said she had amassed her savings for the end of her life over many years. The money was to pay for a carer, her funeral and a gravestone, she said.

“This incredibly upsets me,” she said. “Everyone in my circle, my friends and acquaintances, everyone has Rbs1m. We live off the interest from this deposit added to our pension. The interest is what helps us survive.”

Alongside that new tax, Mr Putin said he would also implement a 15 per cent tax on dividend income that is paid into overseas accounts, a move that requires the government to amend its tax treaties with other countries.

“The proposed solutions are not easy,” he said in the address. “All the additional budgetary revenues that will be received . . . I propose to direct in a targeted way to financing measures to support families with children, to help people who are faced with unemployment or who find themselves on sick leave.

”The levies underscore the anxiety in the Kremlin over the blow to the country’s economy. The country is already facing a damaging slump in oil prices to an 18-year low that has been exacerbated by its decision to withdraw from a crude oil production agreement with Saudi Arabia this month.

Riyadh subsequently triggered a price war.Russia’s finance minister has said the budget, which relies heavily on revenues from oil and gas sales, will swing to a deficit this year and will need to be propped up by cash from the national wealth fund.

“We would love to see money taken from the rich instead of the poor,” Svetlana said.

“But what can we do? They decided to take money from us.”