bne IntelliNews – Belarus and Russia sign tax harmonization agreement
On September 13, Russia and Belarus signed a draft agreement on a general harmonization of the collection of value added tax and excise duties. This was reported by the Belarusian government on its website.
The chairman of Belarusian state oil company Belneftekhim, Andrei Rybakov, announced in late August that Belarus and Russia were working on creating a common oil market as part of their Union State agreement. According to Rybakov, the development of a common oil market would require the adoption of the 28 programs of the agreement on the states of the Union and an intergovernmental agreement on the oil market should be created by mid- 2023.
According to Belarusian state media BelTA, Belarus and Russia are working to bring their VAT and excise tax laws into line with their draft agreement by January 1, 2023.
The agreement provides for the creation of an integrated administrative system for indirect taxes, which will store information on purchases of Belarusian and Russian taxpayers. The system will only collect data on VAT taxpayers registered with the Belarusian or Russian tax authorities from January 1, 2023.
In addition, the agreement prevents excise duty rates on listed goods and services from falling below the rates; it provides for a common list of transactions exempt from VAT or subject to reduced VAT rates; Finally, the agreement also provides for the creation of a supranational tax commission, which will ensure that both parties follow the agreement.
According to Russian Deputy Prime Minister Aleksei Overchuk, “…this will simplify trade operations in the Union State between Belarus and Russia. The document envisages expanding cooperation on taxation. This will remove tax barriers in mutual trade, ensure the integrity of the tax base of Belarus and Russia.
The deal is part of Belarus and Russia’s fulfillment of their 28 Union State Programs that were approved by Lukashenko and Putin last fall.
Since the signing in 1999 of a first State-Union agreement, Minsk and Moscow have been trying to define the precise nature of their Union. Moscow has pushed for stronger political and economic integration between the two countries, even considering the creation of a potential ruble zone. However, Lukashenko only signed the deal for the same reason he joined the CSTO and the EEU, to meet Moscow’s needs to benefit from lower energy prices.
Until 2020, Lukashenko has skillfully played Russian and Western interests against each other to receive concessions from both; when his power was really threatened by nationwide protests against falsified election results in 2020, Lukashenko realized there was no turning back to the West. Minsk then embarked on a frenzy of domestic political repression, increasingly cutting ties with the West. After admitting Crimea was Russian in the fall of last year, Lukashenko even took the final step to sever all but diplomatic ties with Ukraine after aiding Russia in its invasion this year.
As a result, Lukashenko has few allies except Putin. Although he may have political allies such as Beijing and other CSTO and EAEU member states, there is no one but Moscow who has the power or the will to materially support his centralized business model.
Unity within the CSTO is also cracking, as no member state is in an immediate rush to help Armenia fight Azerbaijan. Instead, Minsk is simply urging both sides to show “restraint” while focusing on bolstering its heavily sanctioned logging industry by exporting timber to Armenia.
To stay in power, Lukashenko therefore had to concede enormously in one of his fiercest battles with Moscow, namely on the question of taxation and the creation of supranational bodies encroaching on the economic control of his regime in the future. within the borders of Belarus.
While Minsk asked Moscow for domestic Russian gas and oil prices, Moscow’s rhetoric hardened around 2015/2016 when it claimed that this could only happen if Minsk agreed to tax harmonisation. Lukashenko has blocked this latter part of the Union’s programs for years and did not seem overly optimistic last year, at least not to the point where analysts thought he would stop stagnating.
Clearly, just as many were surprised at how far Putin was willing to go on Ukraine in February, analysts are repeatedly surprised at how far Lukashenko is willing to go. Judging by his previous actions this year – helping Russia invade Ukraine, stepping up domestic political repression, arresting an EU diplomat and continuing to threaten EU borders – Lukashenko is increasingly putting both feet completely on the Russian side.
Relinquishing control of Belarusian foreign policy as well as important economic policies to suit Russian interests will eventually leave Minsk completely at Moscow’s behest. Right now, Lukashenko needs all the money he can get, and he will play all his cards to ensure his own safety, that of his family and that of his regime. The question is what will Putin use it for once he runs out of cards?