Quasi-economic “currency tax”

Just abolished "currency tax" tax makes economic entities to change tactics

The last week of 2014 outlined the two major trends that will determine the economic development of Belarus in the coming year.

The first one describes the increased dependence of Belarus on external economic factors, the second – new methods of the government for arising economic difficulties. Both trends have a number of not typical features.

Increased dependence of the Belarusian economy on external factors we can clearly see in recent devaluation of national currency happened in December. Even essential “official” devaluation happened, but there was a tax for the purchase of foreign currency, which was introduced first as a 30%-tax, later reduced to 20%, 10% and cancelled now. Belarusian ruble devaluated for the same rate of 10% for the period from February to December 2014.

Due to significant depreciation of Belarus’ main trade partner – Russia —  Belarusian ruble fell for almost the same rate. Given the limited internal resources, the state has failed to smooth the strong devaluation expectations in the country and was forced to devalue the Belarusian ruble.

Forced devaluation demonstrated reduction capacity of the state to mitigate adverse external macroeconomic conditions purely administrativemeasures without taking direct economic measures.

The devaluation demonstrated that the state couldn’t mitigate consequences of external events with the help of administrative measures. Direct economic decisions should take place to make the situation better.

Size and time of the devaluation, as well as other macroeconomic decisions will now be more dependent on the situation at foreign markets, not from the desire of the authorities. However, the state will continue to apply administrative restrictions to control macroeconomic situation in the country. This is clearly seen in the process of devaluation of the Belarusian ruble.

The method of devaluation characterizes the second trend in the management of the economy in Belarus. It has become a feature of 2014 and, possibly, will be continued in 2015. Given the mistakes of 2011, the state did not go with the direct prohibition of foreign exchange operations, but introduced a “currency tax”. That tax was to limit the demand for foreign currency and to create an additional source of revenue for the budget.

Problems with taxation

In practice, it was not administrative, but quasi-economic way to solve the problems with currency, which is a combination of economic and administrative restrictions on the foreign exchange market. The economic component of the decision seems to be clear, the administration part is not so obvious and includes the prohibition of counting “currency tax” as expenses (paragraph 2.4 of the Decree № 607 from 20.12.201).

The general approach of the taxation system in Belarus is to calculate all the taxes associated with the production and sales as expenses and don’t use it while calculating profit tax . These taxes are VAT, property tax, land tax and other obligatory payments.

Introduction to tax regulations exemption for “currency tax” is actually governmental restriction in usual tax practice.

The government stated that the purchase of currency is not an essential procedure for the production and sale of goods, works and services and, therefore, not taken into account when calculating the income tax. As a result, it is unclear how to buy foreign raw materials.

It should be noted that the introduction of a currency tax is not the first quasi-economic way to solve economic problems. For the first time this method was applied in July 2014: Decree №361 regulated tax deduction for foreign VAT. As in the case with the currency tax, decree №361 was temporary. It prohibited businesses to deduct foreign VAT, importing goods to Belarus.

Direct analogy with the Decree №361 is not accidental. The main reason for the introduction of the currency tax, as well as the introduction of Decree №361 is need to solve economic problems associated with the growth of import and demand for the currency. At the same time, the main economic purpose of both decrees is to create conditions when the import becomes unprofitable.

In the first case, this was achieved through a temporary increase in the VAT tax burden. In the second – with the help of currency tax, which is to be paid directly from profit. In fact, it is a price for the “right to import”. This makes classical devaluation and actual events in Belarus different.

In usual situation, importer’s expenses increase for amount of devaluation in percents. And company has less profit to pay profit tax. While according to actual Belarusian regulations, profit tax is paid before “currency tax”, so the importer is double-taxed.

The tax was declared as temporary. This fact allows developing several strategies of conducting business with lowest harm of Decree №607.


The first and the simplest solution of the problem is a temporary suspension of the company. This solution is possible for small companies and importers. It also can be quite easily implemented because of holidays. The negative aspect of this scheme is impossibility of making fast decisions if macroeconomic situation will change.

This negative can easily be avoided if business applies to a second strategy of behavior – associated with conducting negotiations with foreign suppliers. Foreign suppliers can provide deferment of payment. This situation allows the company to make quick decisions in the event of changes in the macroeconomic situation, for example in the case of cancellation of the “currency tax” as it happened on January 8. The negative aspect of prolongation the tax did not happen.

All these schemes were quite viable as long as the state didn’t make a classic devaluation and exchange weren’t equal to the National Bank’s. The “currency tax” was cancelled on January 8, but National Bank’s exchange rates are still don’t match rates in commercial banks.

In general, decree showed that the most profitable and safe strategy is to develop both import and export. Businesses, which import and export goods experienced less damage from the currency fluctuations and macroeconomical decisions. This strategy will be the most efficient in 2015.

About Filip Drazdou (16 Articles)
Filip Drazdou is High school student in Minsk. He is going to obtain a degree in the field of finance or economics. He is also interested in sports and politics.

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