Russian's to pay capital gains tax on gold sales

By Rhod Mackenzie

Russians will be required to pay tax on the gain (NDFL) when selling gold bars starting from the end of 2024, according to the new Government regulations . The exemption from paying tax on the gain in value, which was in effect in 2022-2023, will not be extended. Financial institutions are concerned that the demand for bullion will now decrease, and Russians may switch to investment coins, unallocated metal accounts (OMA), and gold trading on the Moscow Exchange. Analysts have attributed the decision not to extend the deferment to the need to deal with the deficit budget.

Russians will have to pay tax on monetary gain from the sale of gold bars at the end of 2024, for the first time in two years. This information was provided to by the largest banks to the newspaper Izvestia.

Previously, citizens were exempt from paying tax on any gain in value from the sale of bullion made from this precious metal in 2022 and 2023. It was assumed that, against the backdrop of sanctions, this measure would support investment in gold, making people more willing to use it as a savings instrument.

However, VTB and Uralsib clarified that the measure was not extended this year.

    A lawyer from the Structural and Tax Consulting practice at Lemchik, Krupsky and Partners provided this information. If you sell bullion for a higher price than you bought it, you are obligated to pay personal income tax of 13%. This tax must be declared and paid by July 15th of the year following the sale. However If the investor has owned the bullion for over three years, they are exempt from paying the fee.

According to Alexander Tsyganov, Deputy General Director of Digital Broker, the tax exemption was not initially intended to be permanent, as evidenced by the time limit. However, the measure proved to be highly effective. The demand for precious metals reached record levels, with 75 tons of gold bars sold to the public in 2022 and 35 tons sold in just three months of 2023 , compared to an average of 5 tons in 2020-2021.
Over the past two years, the government aimed to generate interest in this investment instrument by abolishing personal income tax, according to Veles Capital analyst Elena Kozhukhova. With increased demand for the precious metal, and the Cabinet of Ministers requiring additional budget revenues, it is now time to reinstate the tax. Kozhukhova suggests that the tax should be assessed once again.
An analysts at Freedom Finance Global Vladimir Chernov agrees that the exemption from personal income tax on the sale of gold bars was introduced temporarily due to the geopolitical situation and economic uncertainty in the country.

He notes that Russians have limited investment opportunities in foreign financial markets and face increased risks of asset freezing and confiscation. Additionally, foreign investors have begun to leave the stock market due to restrictions, which has led to its collapse. Therefore, Russians were given more investment opportunities despite high inflation. Additionally, there is no risk of bullion being frozen or confiscated,” he explained.

The primary geopolitical risks are now in the past, as the Russian economy has successfully adapted to the pressure of sanctions. Inflation is gradually decreasing towards the target level, so the exemption from personal income tax is not as relevant, according to Vladimir Chernov. In the context of a budget deficit, any taxes will not be superfluous, he emphasized.

The abolition of the fee in 2022-2023 supported the gold miners and refineries. The sanctions pressure in some periods threatened to sharply worsen the possibility of selling the precious metal, as noted by Evgeniy Mironyuk, a stock market expert at BCS World of Investments.

Extending the exemption from personal income tax would be justified, but the federal budget requires additional sources of replenishment. The Russian treasury's expenditures in 2024 will reach a record value of 36.66 trillion rubles.
Uralsib's executive director of precious metals operations management, Andrey Vasiliev, expects a slight decline in demand for bullion due to the obligation to pay personal income tax.

“Although the exemption from personal income tax on the sale of gold bars is no longer valid, we do not anticipate a significant reversal of the long-term trend for gold purchases,” said Yulia Bezmenova, Vice President and Head of the Business Development Department for Private Banking and Privileges at VTB.

Alexander Tsyganov from Digital Broker expects a decline in demand for bullion among individuals. Citizens may opt for other products related to precious metals such as investment coins, compulsory medical insurance, or gold trading on the Moscow Exchange.
Elena Kozhukhova from Veles Capital argued that the decision to not extend the tax deferment will moderately impact demand, but it is unlikely to affect the decisions of long-term gold investors.
According to Vladimir Chernov from Freedom Finance Global, the popularity of investing in bullion is expected to decrease due to its decreasing profitability. Tight monetary policies have resulted in bank deposits yielding up to 15.7% per annum, OFZs up to 16.5%, and some corporate bonds up to 17%.

Evgeniy Mironyuk from BCS World of Investments admitted that it is difficult to predict the exact decline in demand for physical gold. However, sales to citizens are likely to fall by double digits in percentage terms.