New depositors tax may trigger outflow of deposits – Moody’s

US, WASHINGTON (ORDO NEWS) — A new tax on interest income on deposits, the amount of which exceeds 1 million rubles, may lead to an outflow of this category of depositors, analysts at the international rating agency Moody’s say.

On Wednesday, Russian President Vladimir Putin, in an address to the nation, promised support to citizens, as well as small and medium-sized businesses, the most affected by the coronavirus pandemic.

The plan includes declaring next week non-working, increasing social benefits, six-month deferrals for small and medium-sized enterprises on loans and taxes, excluding VAT, as well as a moratorium on bankruptcy of companies.

Entrepreneurs and the population are called upon to pay part of the exemptions – Putin instructed to tax interest income of citizens whose bank deposits or investments in debt securities exceed 1 million rubles, as well as all income in the form of interest and dividends that go from Russia to offshore.

By the beginning of 2020, depositors held more than 30 trillion rubles in banks, according to data from the Deposit Insurance Agency. It follows from them that about 1% of depositors will face the need to pay this tax – the amount of their deposits exceeds 1 million rubles.

However, such depositors form the basis of the passive base of Russian banks – they account for 55.3% of the total deposits of individuals throughout the entire Russian banking system. From the materials of the DIA it follows that it is this category of depositors that has been more stable and more noticeable than the others has replenished bank liabilities over the past five years.

“We expect that some investors in this category may reduce their deposits to avoid tax by converting rubles into foreign currency or investment instruments. As a result, banks’ deposit bases may be unstable,” Moody’s analysts write in their review.

Alfa-Bank analysts estimated budget revenues from new taxes on interest on deposits at 100 billion rubles. This measure will not affect the interest income of citizens received in 2020, but will only begin to operate in 2021, that is, taxpayers will receive notifications from tax authorities only in 2022, the Finance Ministry said.

The head of Sberbank German Gref said in a letter to customers on Thursday that interest income on the total amount of individual deposits at all banks would be taxed if, collectively, they exceed 1 million rubles and in part exceeding 1 million rubles.

Ruble revaluation of foreign currency deposits will not be taxed, indicated in a letter to Gref.

“For many decades, humanity has not been faced with a crisis comparable to the consequences of the coronavirus pandemic,” stated the head of the largest bank in the Russian Federation.

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