A number of important fiscal draft laws were
examined by the Duma during the spring-summer session that has
just ended. We asked Deputy Chairman of the Duma Committee on
Budget and Taxes Mikhail Zadornov to comment.
Unlike last year, when the Duma passed a number of wise decisions
to weaken the fiscal burden, it is difficult to give a simple
verdict to the results of the recent session. It is good that
the Duma continued the policy of completing the Tax Code by creating
certain chapters: for example simplified taxation of small business
and production-sharing agreements. The deputies also passed a
decision to abolish from next year turnover taxes, the tax on
currency purchases and the securities tax. In other words the
Duma has continued to abolish "harmful" taxes. Thus,
the trend of reducing the tax burden and the number of taxes continues.
At the same time I would not risk assessing all the changes
as positive for taxpayers. Many of these changes were adopted
on political orders and did not result from an accurate assessment
of their economic consequences. One typical example here concerns
the adoption of the chapter on simplified taxation of small business.
This was made on the direct orders of the President. I would like
to recall here that the leaders of the four centrist factions
came to the meeting with the President with one position and left
with a totally different position and finally supported the presidential
draft. However, when the draft was discussed in our Committee,
everyone agreed that it did not provide any real tax leverage
for small business. The Committee proposed transferring considerable
part of small business onto patent to simplify the situation.
The Government, however, was inclined to impose re-registration
and more complicated reports for small business. After realising
that the four centrist faction had adopted their political decision,
the Committee withdrew from attempts to amend the draft. This
was our principled position: the Government should be responsible
for the consequences of their decisions. I am convinced that entrepreneurs
will lose out owing to the restrictions and tax rates envisaged
by the law. It does not create any conditions for legalisation
of small businesses, even though most of them today simply do
not pay taxes. Most unfortunately the law requires small businesses
to maintain full-scale accounting which they will find difficult
to implement technically and quite costly.
Most of the population will be affected by the consequences
of the decisions to increase excise duties on alcohol, tobacco
and petrol. But they will have different impacts on our wallets.
Excise duties on beer and tobacco on the price of these goods
in Russia are four or five times lower than the average in Europe.
Certainly, it does not make life easier for people: everyone is
used to cheap cigarettes in Russia. But I think that tobacco prices
(despite a 70% increase in duties) and beer prices (25% increase)
will demonstrate a minimum rise. An increase of 1-1.5 roubles
for expensive cigarettes and 50-60 kopecks for cheap cigarette
is unlikely to have a serious impact. Similarly I think beer prices
will rise on average by 3-4%. This is a sector with high competition,
where demand dictates price restrictions here.
The rise of excise duties on petrol, diesel fuel and motor oils
will be quite high - by 45%. In addition the duties will be now
paid by the last trader before retail trade (i.e. the oil-base
which is the direct supplier of petrol to petrol stations), instead
of the 20 or 30 oil refineries in Russia. As the whole system
of excise duties is being changed, it is difficult to calculate
all the consequences. But I am convinced that the oil companies
will try to preserve their profitability and finally transfer
this rise to the consumer; furthermore they will not do this at
the moment of introduction of this duty, i.e. from January 2003,
but far earlier. We are already observing this process: real petrol
prices have already increased by 15%. I think that oil companies
will win another 10-15% by the end of this year.
On the other hand, the struggle between oil companies, the present
owners of petrol stations and local authorities over control of
these oil bases and retail trade will take place in a new fiscal
situation. This process is likely to clean up the situation around
petrol stations. It is a well-known fact that petrol stations
are often controlled by criminal business, as they provide access
to the population’s cash resources. The greater the integration
of retail trade into oil companies, the less criminal the situation.
I would like to note here that car owners were most affected
by the aforementioned innovations. As well as the increase in
petrol prices, they will also have to pay a transport tax. And
this amount is quite large. Lorries and coaches owners in Russia
will have to pay additionally approximately USD300 million. Speaking
about private cars, the tax increase varies from a five-fold increase
for Zhiguli owners to almost a 50-fold increase for the owners
of the latest Mercedes model.
Clearly further actions for the development of tax reform are
necessary: we mean here a reduction in the VAT rate and the single
social tax. However, for the time being the government is not
ready to support these ideas: consequently there will be a considerable
amount of preparatory work. In general my assessment is quite
pessimistic: the tax reform has lost its clarity, direction and
smoothness and demonstrates an increasingly large number of contradictory