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MinFin Increases Taxes

Taxes being paid into the State Budget have fallen by one-third. The Ministry of Finance (MinFin) has found new ways to compensate for this, including increasing extraction taxes for natural gas, excise duties on tobacco and alcohol, and state duties.

Sergei Shatalov, Deputy Minister of Finance, said that the volume of taxes collected for the first five months of 2009 (a total of 2.39 trillion rubles) decreased thirty-two percent in comparison with the same period last year. According to Shatalov, the fall is due to changes in the economy, and not because tax collectors are doing a poor job.

Such statistics make it impossible for the Ministry of Finance (MinFin) to lower taxes, he says.

Shatalov says that MinFin is planning to increase the amount of collected tax by about 115 billion rubles, by increasing tax rates. MinFin hopes to collect 50 billion rubles by increasing the oil extraction tax. That is 60 percent of all collected tax in 2008 (83 billion rubles). Before MinFin was planning this change for 2011, but now it’s being proposed for 2010, and will not necessarily be backed by other government bodies.

Taking into account the expected growth of prices for natural gas in 2010 (up to 27.7 percent) payment of the extraction tax from Gazprom will increase by 22 billion rubles, which is 0.6 percent of the proceeds of the gas monopoly. Representatives of Gazprom and Novatek (Russia's number two natural gas extractor) declined to comment.

The federal budget will receive another 50 billion rubles from increasing all types of state duties, which have not changed since 2000, says Shatalov. This amount is more than all tax revenue received by the federal budget for state duties in 2008 (47.9 billion rubles, according to the data of the Federal Treasury).

According to Shatalov, the MinFin plans to receive 10-15 billion rubles from additional excises on alcohol and tobacco. Shatalov did not say by how much the rates would be increased, but it seems that this tax hike will be the lowest proposed. The government currently receives more than 140 billion rubles, including 63.8 billion from tobacco (according to the data of the Federal Treasury).

Dmitry Dobrov, the Deputy Chairman of the Board of Directors of the Union of Alcohol Producers, says that excises on alcohol will be increased to 210 rubles/liter in 2010, in comparison to 191 rubles this year. The increased taxes will result in increased prices. The minimum price for a legal bottle of vodka will exceed 100 rubles, he says, and will consequently increase the sale of illegal products, which even according to official statistics makes up one-third of the market. The fraction of illegal products on the tobacco market is less than 1 percent, but JT International Russia worries that this could change if there is a sharp increase in excises on tobacco.

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