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  • 2015 KPMG EMA Tax Summit

  • Russia’s Changing Economic Environment

    Bob Wallingford Partner, Tax and Legal Services Tax Head of Japan Global Tax Practice KPMG in Russia and CIS

  • Russia Macro-economic Overview

  • 3© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    Macroeconomic overview of the Russian Federation 2015

  • 4© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    Macroeconomic overview of the Russian Federation 2015

    to 75%

    Share of wallet for goods and servicesby

    4%

    GDP

    by 11.3%

    Real disposable income in 2012 terms

    to 8,3% (Aug 7.8%)

    Unemployment

    to 23.7%

    Food Inflation

    RUB 60.3 trln

    RUB 18 trln

    by 12%

    Retail market

    RUB 60.7 trln

    RUB 45.5 trln

    RUB 30.1 trln

    by 8%

    Household consumption

    Sources: Federal State Statistics Bureau, EIU, Bloomberg, Investment banks reports, Ministry of Economic Development, KPMG analysis, pries base period 2012

    Takeaway Political an economical issues 2014-2015 drove Russian economy to the recession. What are the perspectives?

  • 5© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    Russian GDP forecast

    * All following GDP forecasts are given in the prices of base period (2012) unless otherwise specified

    Forecast

    GDP forecast RUB trln*

    Sources: EIU, Bloomberg, KPMG analysis

    After the economy shock in 2014/15, Russia is expected to be back to 2014 year level in 2018, following the slow rate recovery starting 2016

    63,2

    2017

    64,2

    20202015 2018

    65,1

    61,9

    60,7

    63,2

    2016 20192014

    61,0

    - 4% GDP in 2015 (in comparison with 2014)

    CAGR 2015-2020: 1,4%

    GDP RUR: Y2018 = Y2014

    Comments

    $

    Forecast 2015:

    61,1 RUR/USD Average Jan – Jul 2015:

    57,4 RUR/USD

    Exchange rate

    Takeaway

  • 6© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    GDP growth drivers

    GDP growth drivers magnitude*, 2015-2020 %, RUB trln

    Sources: EIU, KPMG analysis

    ■ Steadily increasing household consumption forecasted to support GDP growth in 2015-2020 ■ Investments which are hit the most are also expected to recover

    2.1

    1.1

    0.9

    0.3

    4.4

    7.5%

    InvestmentsHousehold consumption

    23.9%

    Total increase

    Net export

    100%

    Government spending

    21.4%

    47.2%

    $

    1,4%

    2%

    1,4%

    0,9%

    CAGR, 2015-2020

    Household consumption

    Investments

    Government spending

    Net export

    Comments

    * All numbers are given in the prices of base period (2012)

    Takeaway

  • Trends in Consumer Markets Russia

  • 8© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    Global retail market attractiveness(a) Comments

    Russian vs. Global consumer markets

    (6)

    (4)

    (2)

    0

    2

    4

    6

    8

    10

    12

    14

    16

    18

    3.5002.0001.000 2.5005000 4.0003.0001.500

    Y R

    et ai

    l r ev

    en ue

    C AG

    R ,%

    , 2 01

    4- 20

    17

    Germany

    Russia’15 forecast

    Retail sales forecast US$, 2015

    Russia “14

    US

    Japan

    Brazil

    India

    China

    Currently Russian consumer market is less attractive to the investors than other BRIC markets

    Average cost of capital

    to 21st place 2015 (from 12th in 2014)

    Note: (a) Bubble size represents country’s population Source: Economic Intelligence Unit Forecast. 1Q2015; Bloomberg data; KPMG analysis, A.T. Kearney Global Retail Development Index™

    Inflation to 13.9%

    Р

    % to 18.3%

    Global Retail Development Index™

    Takeaway

  • 9© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    Forecast

    Total retail revenue in Russia by segments* RUB trln in the prices of base period (2012)

    Comments, 2014-2017

    Source: Economic Intelligence Unit forecast, July 2015, Canadean, KPMG analysis

    Overall consumption structure will remain untouched due to an increased debt/income ratio of households

    Retail market

    Debt/income ratio

    Home and garden products

    by 10%

    to 57%

    8 %

    D I

    of sales

    61%

    10%

    18,6

    2016

    10%

    11%

    2017

    8%8% 11%

    18,6

    10%

    10%

    61%

    10%

    9%

    11%

    10%

    +1% -10%

    19,0

    2015

    8% 10%

    61%

    10%

    11%

    61%

    2014

    20,7

    Apparel and accessories Food and grocery Home and garden products

    Electrical and electronics Others (less than 1 trln RUB)

    * All numbers are given in the prices of base period (2012)

    Retail Revenue

    Takeaway

  • Russia’s Changing Tax Environment

    Evgenia Wolfus Partner, International Tax Head of Indirect Tax and Transportation Sector KPMG in Russia

  • 11© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

    Part of “deoffshorisation” package – Amnesty Law to allow individuals to legalise property located outside Russia

    Russian tax concerns – ‘Deoffshorisation’

    Russian tax residents were legally able to send funds offshore and then to continue to earn income on those funds, in each case without paying any Russian tax

    Deoffshorisation combats tax base erosion and the use of offshore companies by Russian businesses

    There are three key goals for Deoffshorisation:

    Prevent funds from being sent offshore without tax by:

    ■ Limiting the use of DTTs through the ‘Beneficial Owner’ concept.

    Tax funds which are offshore by:

    ■ Broadening the Tax Residency rules for companies

    ■ Enacting Controlled Foreign Company (‘CFC’) rules

    Force Russian tax residents to return funds to Russia by:

    ■ Taxing CFC passive income at the normal corporate income tax rate (20%), rather than at the lower tax rate for dividends (0% or 13%) (‘active’ companies are not CFCs)

    ■ Requiring the payment of dividends back to Russia to avoid the CFC tax

  • 12© 2015 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. N