Russia grain exporters adapt after tax crackdown

MOSCOW, Nov 9 (Reuters) - Russia's grain exports are running smoothly after a crackdown on tax avoidance in the country's agriculture trade, a senior Russian Tax Service official told traders on Thursday.

Russian authorities and some Russian grain exporters agreed that from July 1, the start of the 2017/18 season, traders would avoid working with firms suspected of failing to pay taxes.

Traders said the initiative had created some uncertainty in the market.

"The forecast of the agreement's opponents did not come true," Varvara Burlevich, in charge of tax risk analysis and tax inspections planning at the Tax Service, told a grain conference in Moscow.

The authorities in Russia, one of the world's top wheat exporters, were estimated to be losing 65 billion roubles ($1.1 billion) a year in unpaid taxes on grain deals at a time when they are seeking to tackle a budget deficit.

The tax issue involved buying and selling grain via a chain of transactions in which the value-added tax (VAT) liability is left with a small trading company which then ceases to exist.

Burlevich, the main negotiator on behalf of the tax authorities, said top exporters were now increasingly buying grain and oilseeds directly from farmers.

The Russian Grain Union, a non-government farmers' lobby group, said the tax crackdown led to a 5 percent reduction in Russia's domestic grain prices.

"The change has liquidated these funny guys driving around in cars with suitcases full of cash who were killing the market," said Alexander Korbut, deputy head of the Union.

"However, we are still going through the process of the market adaptation and I think it will not happen quickly," Korbut added. "So far, the first echelon has adapted."

Russian government moves to rein in the budget deficit, alongside more transparency from computerised tax data, brought officials' attention to the VAT scheme this spring.

Many Russian grain exporters signed an informal and voluntary agreement in May promising to avoid working with companies suspected of involvement in the tax wheeze.

Since then, 1,420 companies have joined the agreement, traders told the conference.

The change meant Russia prevented the loss of 11.7 billion roubles ($197 million) from budget revenues in the period July to September, Burlevich added.

Russia's top 20 grain exporters are responsible for 67 percent of the country's grain and oilseeds exports and most have restructured their business in line with the tax service's request, exporters told the conference.

However, the process had required extra costs, including hiring new employees for collecting large shipments in small portions, one trader told Reuters on the conference sidelines.

($1 = 59.3225 roubles) (Reporting by Polina Devitt; Editing by Edmund Blair)