Russia has lost so much money due to the Ukraine war that it’s now trying to raise $4 billion by slapping a windfall tax on its oligarchs

• Russia will slap windfall taxes on large companies making over 1 billion rubles in profits since 2021.

• The levy is expected to raise about $4 billion, a high-level finance official told RBC TV.

• Russia posted a first-quarter deficit of almost 2.4 trillion rubles amid the war in Ukraine.

The Kremlin is feeling the pinch from its war in Ukraine so much that it’s imposing a one-time windfall tax on large Russian companies and their oligarch owners.

Russia approved a draft bill to slap up to a 10% one-off windfall tax on large Russian companies, according to a Tuesday announcement by the country’s finance ministry.

It’s targeted towards companies that annually made more than 1 billion rubles, or $11.9 million, in profits since 2021, per the announcement.

This levy could raise about 300 billion rubles, or $3.6 billion, in taxes collectively, Andrei Belousov, the first deputy prime minister, said in an interview with RBC TV, Interfax news agency reported on Tuesday.

Belousov told RBC, a business channel, that the companies themselves proposed the taxes.

“They understand that they had huge windfall profits for 2021 and 2022, simply massive, bigger than the budget,” Belousov said, per Interfax. “I have a lot of respect [for the entrepreneurs]. Many of them are true patriots, no matter what people say about them. They identify very closely with the country.”

Russia’s finance ministry said in the announcement the taxes are to be used for social spending without providing further specifics.

And while the announcement did not specify which companies might be hit by the taxes, analysts told the Financial Times that Russia’s fertilizer and metals sectors were likely candidates.

Although Russian energy faces sanctions and boycotts by many Western nations and their allies, the country is still an important commodity exporter, particularly in agriculture and some industrial raw materials — which, in turn, helps the companies in these sectors.

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Timur Nigmatullin, an analyst at Russian investment company Finam, told the FT he expects information about the windfall taxes to be “opaque” to reduce the likelihood that these companies will be sanctioned.

This instance isn’t the first time Russia’s imposing windfall taxes to fund the war in Ukraine. Last year, the country levied such a tax on energy giant Gazprom after natural gas prices soared to multi-year highs following Russia’s invasion of Ukraine.

Gazprom posted record profits in the first half of 2022, but full-year net profits fell 40% year-on-year due to the Kremlin’s tax hike in the second half of the year. 

However, energy prices have now fallen to pre-war levels due to recession fears.

Russia’s energy revenues have also been majorly hit by sweeping restrictions against its exports, particularly after the European Union — a major customer of Russian energy — banned Russian crude oil starting December 5.

In the first quarter of 2023, Russia posted a deficit of almost 2.4 trillion rubles — sharply reversing an over 1-trillion-ruble surplus in the first quarter of 2022. The country posted a 45% drop in quarterly energy revenues to 1.64 trillion rubles, per data released by Russia’s finance ministry on April 7.

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