PhosAgro calls to change the approach for calculating Russian export duties

PhosAgro calls for taking into account the cost and profitability of products when calculating the export duty on mineral fertilizers.

The draft Decree of the Russian Government, published on the Federal Portal of Draft Regulatory Legal Acts, provides for the introduction from September 1, 2023 of a single ad valorem export duty rate of 8% of the customs value of products.

“The discussed parameters of the export duty do not take into account the cost and profitability of exported products, which differ greatly for different types of mineral fertilizers with different concentrations of nutrients,” said PhosAgro CEO Mikhail Rybnikov.

“Thus, the production chain of phosphate and complex fertilizers includes the extraction and enrichment of phosphorus raw materials, the processing of gas into ammonia, the processing of sulfur into sulfuric acid, the processing of sulfuric acid and phosphorus raw materials into phosphoric acid, the processing of potassium, and the processing of ammonium sulfate to obtain complex fertilizers. Significant costs are incurred to maintain the reserves of apatite-nepheline ores prepared for extraction. To introduce new production horizons to replace retired ore objects, it’s necessary to continuously finance the capital construction of underground apatite-nepheline ore mining facilities. The construction of new mining facilities takes more than 10 years, during which the company incurs significant material costs with a deferred effect,” added Mikhail Rybnikov.

The production chain for nitrogen fertilizers is much shorter – processing gas into ammonia and processing ammonia into fertilizers. In turn, the production of potassium chloride is only the extraction and enrichment of potash ore.

If the factor of different costs and profitability is not taken into account when developing fiscal mechanisms, there will be an unfair bias in the distribution of the tax burden between companies in the industry. The lion’s share of the additional tax burden, amounting to hundren millions of dollars, will be transferred to producers of complex fertilizers, hitting the investment potential of the sector and its competitiveness in the global market.

PhosAgro calls on the concerned ministries and departments at the stage of discussion of the bill to develop a fair mechanism for calculating the export duty, while remaining a reliable taxpayer, annually increasing payments to the budgets of all levels. Thus, the company’s consolidated tax deductions in 2022 increased by 1.5 times and exceeded 59 billion rubles (almost $631.7 million). In total, since 2013, the volume of tax deductions of the company has exceeded 200 billion rubles (approximately $2.14 billion).

“It’s also worth noting that it was PhosAgro that accounted for two-thirds of payments to the federal budget collected in the first 6 months of this year under the current duty mechanism in the amount of 23.5% of the difference between the customs value of exported fertilizers and $450,” concluded Mikhail Rybnikov.