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. Last Updated: 07/27/2016

Scrap Sellers Urge VAT Abolition

Scrap metal processors Thursday urged the state to abolish value added tax on steel scrap, which they said was allowing corrupt merchants to drain nearly $1 billion a year from state coffers.

Representatives of the Recycling Materials Association, which groups together 28 Russian scrap processors, said the removal of VAT on steel scrap would encourage more investment in a sector where law-abiding merchants struggle to turn a profit.

From Jan. 1, 2008 VAT obligations will be removed for nonferrous-scrap processors, but tax regulations are set to remain in place for the country's 5,000 steel-scrap enterprises.

The country, a net steel-scrap exporter, is consuming larger amounts domestically as the booming construction sector demands more steel. Processors supply major steel mills such as Severstal, Magnitogorsk and NLMK.

Steel-scrap demand rose last year to 19.8 million tons from 17.3 million tons in 2005.

The Recycling Materials Association said in a statement that the government reimbursed $1.15 billion in VAT payments annually to steel-scrap merchants. But it receives only $235 million in VAT payments -- leaving $915 million unaccounted for.

Industry officials said fraudulent traders claimed back the tax without having paid VAT on exports. For domestic sales, they receive a premium from buyers to cover VAT but fail to declare this to authorities.

Filipp Monosov, the association's executive director, said merchants who paid VAT could not compete with those who do not.

"Those who do honest business work on a completely different level," he said on the sidelines of the briefing.

VAT is applied at a rate of 18 percent.

"There used to be a device on trams, where people would put in three kopeks and take a ticket. Fifty percent didn't pay their three kopeks but took a ticket. It's the same with VAT," association member Vladislav Osmolovsky said.

"If you give people the choice to steal or not to steal, there will always be a percentage who will not pay VAT."