Uncertainty over Russia’s wheat export tax seen slowing trade

Moscow/Abu Dhabi | Reuters –– Uncertainty over Russia’s new wheat export tax is slowing trade activity as traders who have signed forward contracts say they are unsure about how the formula will be implemented.

The floating tax formula, to be launched from July 1, is intended to stop exports surging if the rouble drops steeply, the Russian government said when it signed the order in May.

Russia, a major wheat exporter, has battled with a volatile local currency since mid-2014, due to weak oil prices and Western sanctions over Moscow’s role in the Ukraine crisis.

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“Russian wheat would be offered more aggressively if there was more clarity on the tax,” one Moscow-based trader said. “It is still unclear how the customs will work.”

The tax formula was prepared by Russia’s economy ministry and approved by the government in May. The tax is set at 50 per cent of the customs price per tonne, minus 5,500 roubles (C$125), but not less than 50 roubles per tonne.

But the formula does not specify the moment at which customs should determine the level of the tax and the rouble/dollar rate.

The economy ministry said questions on these details should be directed to the Customs Service. The latter did not answer several requests for comment.

Some traders expect the tax level to be set at the moment of wheat loading, which would increase currency risks for firms who sign export contracts several months ahead of the physical supply.

Despite the uncertainty, however, Russian wheat suppliers have recently won several tenders from Egypt’s state grain buyer GASC, one of the largest importers of Russian wheat, as some sellers accept the risk.

GASC was not available for comment despite several attempts to contact it.

Egyptian demand for Russian wheat is supported by low prices, which Cairo-based traders say should prevent higher tariffs despite the rouble volatility.

“At the moment, it does not seem likely it will affect GASC purchases,” one of them said. “Of course if there are taxes it is the trading firms that will have to bear the brunt.”

Black Sea prices for Russian wheat were at US$190 per tonne at the end of last week.

Reporting for Reuters by Polina Devitt in Moscow and Maha El Dahan in Abu Dhabi.

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