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Annual Report 2017

The Russia’s government approved the increase of value-added tax and retirement age

21.06.18

On June 14, 2018 the Russia’s government approved the increase of standard value-added tax (VAT) from 18% to 20% starting January 1, 2019, while keeping preferential VAT rates for food and export at 10% and 0%, respectively.

This measure will influence consumer prices through inflation expectations and outstripping price adjustment. Tax rate growth of 2 p.p. can boost annual inflation by 0.5-1.0 p.p. Raise of consumer prices will put pressure on purchasing power and will push down real disposable income of population, other things being equal. Though, as a rule, consumer is inclined to save on food in the last resort, some demand contraction is possible on such products as meat, particularly pork.

Moreover, as the result of tax burden increase and worsening expectations there is a risk of the slowdown of economic activity and the decrease of GDP growth rate in 2019, which was declared in June monetary policy report of Central Bank of Russian Federation. The tax increase measure is considered to have moderate negative effect on Rusagro.

Since January 1, 2019 the government is also planning to gradually increase retirement age. For men retirement age will be raised from 60 to 65 years in 2028, for women – from 55 to 63 in 2034. Given work force deficit, caused by contraction of working age population during last 10 years (from 90,2 million people in 2008 to 79,0 million people in 2017), increase of working age population and income uptick of older people can lead to payroll costs reduction and consumer demand growth. This change is considered to have positive effect on Rusagro.