Translated material
Burden
The tactical struggle for tax cuts led the government away from discussing the country's development strategy
The good intention to discuss the global macroeconomic tasks facing the government and the country in the next ten and even twenty years (Putin’s plan, also known as “Strategy 2020” ) seems to be developing into a discussion on a much more immediate and pressing topic - about the prospects tax cuts in a year or two. And also about a possible above-plan increase in tariffs for electricity and freight rail transportation.At the final board meeting of the Ministry of Economic Development, Viktor Zubkov and the host of the event, Minister Elvira Nabiullina, tried to talk in detail about the concept of the country’s long-term development until 2020 and even a longer-term forecast until 2030. But in the end, the main topic of the board was the possibility of reducing the tax burden on the economy . As a result, even the most staunch opponent of tax cuts - Deputy Prime Minister and Finance Minister Alexei Kudrin admitted that the mineral extraction tax could be reduced as early as 2009, and the value added tax - in 2010-2012. However, the decision on this will have to be made by the new government headed by Vladimir Putin.
According to Prime Minister Viktor Zubkov, “the main goals of the state’s economic policy are well known, first of all, achieving dynamic and sustainable economic growth and increasing the country’s competitiveness.” In this regard, he advised the Ministry of Economic Development and Trade to focus on improving the quality of forecasting and comprehensive analysis of the consequences of proposed decisions in order to “timely identify factors that impede economic development.”
Elvira Nabiullina, who spoke after the Prime Minister, began identifying these factors. Previously, the Russian economy faced two main problems, she said. These are infrastructural limitations and lack of labor resources. Now they have been replaced by two other obstacles - the low competitiveness of economic sectors and the lack of “long-term” money for financing. The government should focus on solving these problems, and the two previous problems have not been fully resolved. Thus, the share of bank loans in the volume of investments in fixed assets should increase to 14% by 2011 from the current 9.4. And small businesses will contribute to increased competitiveness. According to the head of the Ministry of Economic Development and Trade, the development of small business should become a key priority for the Russian government, so that its growth rate is at least 10% per year. “We cannot treat small businesses on a residual basis,” Ms. Nabiullina believes.
But the main discussion still revolved around the issue of tax cuts. On Friday, March 28, the Ministry of Finance submits its proposals to the government to improve the tax system. Apparently, negative trends in oil production (after many years of growth there has been a decline) forced the traditionally cautious department to encroach on the sacred - the inviolability of the Russian budget. Deputy Prime Minister Alexei Kudrin said that his department will initiate a reduction in the tax burden on oil workers starting next year. The reason must be very compelling. Moreover, the day before, as the Vremya Novostei newspaper already wrote, the Ministry of Finance finally lost the battle with Gazprom regarding increasing the tax on gas production .
“We will make proposals to reduce the tax burden by 100 billion (rubles) starting from 2009,” Mr. Kudrin said. According to the minister, these proposals are the first step to support “innovative mechanisms primarily through income tax and depreciation deductions.” As a source in the Ministry of Finance explained to Interfax, the proposals concern changes in the adjustment coefficient that is used when calculating the mineral extraction tax (MET) in the oil industry. They will reduce the tax burden on each ton produced by $6. According to him, the initiative to change the coefficient comes from the Ministry of Industry and Energy, which justifies the need for such changes by the stagnation of oil production observed at the beginning of 2008. The source explained that when adopting this formula, the developers proceeded from the fact that “the value of $9 per barrel characterizes the cost of production, and the tax is taken regardless of costs, simply from a ton of extracted minerals.” “It is clear that the formula adopted six years ago is no longer justified, so it needs to be modified somehow,” says the official. In this regard, according to him, it was decided to change the formula in 2009, increasing the cost from 9 to 15 dollars per barrel.
Last year, Russian oil companies paid about $48 billion to the budget in the form of mineral extraction tax alone. In this context, 100 billion rubles. everyone looks like a symbolic concession, but, on the other hand, it’s more than nothing. Moreover, the government is already close to introducing new strict investment obligations on oil companies related to the requirements for the utilization of associated petroleum gas (APG). The issues of securing a 95 percent level of APG processing and the adoption of severe sanctions for non-compliance with these requirements will be considered today at a meeting of the government commission on the fuel and energy complex.
Previously, the Ministry of Finance categorically rejected the possibility of easing the fiscal obligations of the oil sector. Last week it became known that Rosneft came up with the idea of modifying the principle of taxation of the oil industry (reducing taxes levied on revenue, in particular the mineral extraction tax, increasing withdrawals from profits). The Ministry of Industry and Energy and the Ministry of Economic Development spoke at different times about the excessive burden on oil companies, but the position of the Ministry of Finance was adamant. So in January, Deputy Minister Sergei Shatalov, who oversees tax policy in the financial department, said that the Russian authorities have exhausted the possibilities of reducing the tax burden in the face of a significant increase in state social spending and uncertainty in world markets.
In addition, this Monday at a special meeting with Vladimir Putin, the final decision was made not to touch the mineral extraction tax on gas until 2010 inclusive, but to increase the rate only after domestic gas prices reach a level of equal profitability with exports to Europe (planned for 2011). This decision was officially confirmed yesterday by Mr. Kudrin, citing the significance of Gazprom's investment program. Despite the fact that now annual fees for gas production from all companies taken together amount to about 100 billion rubles, or 12 times less than what oil companies pay.
However, after such a sacrifice, it became completely unbearable for Alexei Kudrin to even think about a possible reduction in other taxes. According to the Ministry of Finance’s calculations, reducing the value added tax to 12-13%, which both the raw materials industry and the rest of the business is counting on, will lead to a loss of revenue in the amount of 2% of GDP. At the same time, recovery due to increased collection will occur no earlier than in 8-12 years. “2% of GDP is all spending on national defense or the entire basic part of pensions,” Mr. Kudrin gave a clear example.
However, he immediately made a reservation that the readiness for settlements on this issue is minimal. The package of tax proposals that will be submitted to the government this week does not include any changes to VAT. And Prime Minister Viktor Zubkov, giving such an instruction, drew attention to the need to “work and carefully, with calculations, consciously approach this decision.” VAT proposals will not be ready until August. And if a possible reduction in VAT occurs, then, according to Mr. Kudrin, already in the next three years, from 2010 to 2012. At the same time, the Minister of Finance noted that the global trend is to reduce income tax, since it is difficult to collect due to the development of transnational companies, and the trend for VAT, on the contrary, is directed upward.
According to Ms. Nabiullina, the VAT reduction should take place in 2010 and be quite radical. “A slight decrease - one or two percentage points - will not have a positive effect on the economy,” she is convinced. At the same time, she for the first time voiced the position of the Ministry of Economic Development and Trade regarding the replacement of VAT with a sales tax. And here her opinion completely coincided with the position of Mr. Kudrin. “There is no need to change VAT to sales tax - this is a rather risky step, and it has negative consequences. It is more correct to move in the direction of reducing VAT, but it is necessary to calculate all the budgetary consequences and consequences for the economy,” said the head of the Ministry of Economic Development.
Alexey Kudrin discussed the criticism of the sales tax in more detail. Between 1990 and 2007, the number of countries using VAT grew from 48 to 120, and only five countries switched to sales tax, of which three countries, "disappointed with sales tax, went back to VAT," he shared. knowledge with board members. The head of the Ministry of Finance said that the sales tax collected in the United States accounts for only 2.2% of GDP, and VAT in Russia is 6.3%.
The president of the Russian Union of Industrialists and Entrepreneurs, Alexander Shokhin, who participated in the board meeting, considered it necessary to hurry the government to reduce VAT. According to him, “the safety cushion in the form of the Reserve Fund and the National Welfare Fund not only allows, but also requires starting this process in 2009. In the next three-year period, in 2010-2013, it will be difficult to decide on this, since the oil and gas transfer will decline, and there will be an additional counterargument in the form of a decrease in the possibility of compensating for the shortfall in income from reserves.”
At the same time, according to Mr. Shokhin, lost revenues can be compensated through non-tax mechanisms, in particular through privatization. “The state’s activity to increase state assets, which is happening now and goes beyond the boundaries outlined by the current and elected presidents, allows us to count on an increase in revenues from privatization, including through an IPO,” Mr. Shokhin said. “If life forces us to look for additional opportunities to mobilize income, then the government can easily cope with it,” says the head of the Russian Union of Industrialists and Entrepreneurs.
And on this issue, he unexpectedly found understanding on the part of Alexei Kudrin. “It was said that all the tidbits had already been sold. But this is not so,” said the Minister of Finance, recalling that the privatization plan for 2008 did not include stakes in insurance, aviation and automobile companies.
In addition, as it became known on the sidelines of the board, the government is considering the possibility of increasing the previously approved maximum tariffs for electricity and rail freight transportation for 2009-2010. Deputy Minister of Economic Development Andrei Belousov told reporters about this. Gas tariffs will not be affected. The Ministry of Economic Development and Trade has submitted to the government scenario conditions for the development of the Russian economy for 2009-2011, on the basis of which the federal budget for the next year and the three-year financial plan are calculated.
Director of the Department of State Regulation of Tariffs, Infrastructure Reforms, Environmental Economics of the Ministry of Economic Development and Trade Denis Askenadze, in turn, explained the increase in tariff adjustments by the fact that “the initial conditions of a number of companies (monopoly) are changing, there are obligations under investment programs.” In particular, according to him, Russian Railways is increasing its costs for maintaining fixed assets (park repairs), as well as in connection with preparations for the 2014 Winter Olympics in Sochi.
In the spring of 2007, the government approved a maximum increase in tariffs for electricity, gas and freight transportation. Thus, it was planned that regulated electricity tariffs would be increased in 2008 by 12%, in 2009 - to 12.5%, in 2010 - 13.5%. For the population - 14, 15 and 18%, respectively. It was expected that the price of gas sold to the population would increase by 25% in 2008, and by 27.7% annually in 2009-2010. The average increase in freight transportation tariffs should not have exceeded 11% in 2008, 9% in 2009, and 8% in 2010. For passenger transportation - 14, 13 and 12%, respectively.