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An Excise Tax Is Still An Excise Tax

State Duma Deputies agree to replace the transportation tax with a gasoline tax.

Parliamentary deputies intend to review necessary amendments to legislation in September so that in 2011, roads can start being built not from transportation tax revenue, but from revenue from excise taxes on fuel.

During a round table discussion late last week, Duma deputies expressed support for the idea of forming special funds for road construction.

Repair and maintenance of roads is being planned at the expense of excise taxes on fuel. The excise taxes, which already exist now, will increase an average of three rubles per liter of gasoline.  Special federal budgetary funds and regional funds will be established on account of the taxes.

However, there are many other suggestions being made for the form the fund should take. For example, the head of the Duma Committee on Construction and Land Relations is proposing to make the fund extra-budgetary; however, the Ministry of Finance does not intend to move the fund out from the federal budget. However, the fund will be formed as an Investment Fund so that the money which accumulates in it doesn’t get burned up by the end of the year. This will help road workers in spring to start repair work and not have to wait for autumn when their repair requests are finally approved and they are given the necessary funding. According to experts, the system of transferring money to another year will allow the quality of work to improve and to optimize how the money is spent. All of this should have a positive impact on the road work being done.

Igor Levitin, head of the Transportation Ministry, the department which initiated the review of financing sources for the road maintenance, said that gas is becoming more expensive even without the excise taxes going up.

Fuel costs are rising and, as before, funds for road work are insufficient. 193.5 billion rubles are now needed for maintenance and repair work. Levitin stated that under the current system, there is a 136.7 billion ruble deficit. Eliminating the transportation tax and creating a fund from excise tax revenue will allow Russia to change to deficit-free financing for road repair and maintenance, he added.

The Ministry of Finance is also interested in resolving the problems associated with road repair work and in looking for sources to replenish financing. Those in the Finance Ministry support the Transportation Ministry’s system. Parameters have already been put in place for increasing the excise tax by 2 rubles in the base model of the 2011 budget and by yet another ruble in the 2012 budget. And this is with complete elimination of the transportation tax on passenger cars in 2011 and on trucks in 2012. The volume of financing for the maintenance of roads within the framework of a federal special-purpose program may increase from 155 billion rubles up to 196 billion rubles, according to experts from the Ministry of Finance. There are enough funds for compensation to the regions in 2011 for the decrease in income from the elimination of the transportation tax. Funds from the excise taxes are being proposed to be transferred to the regions depending on the volume of gasoline sold, total length of roads, and number of vehicles.

Under the proposed system the increased income should amount to 116 billion rubles in 2011 and 266 billion in 2012, and in 2013, 290 billion rubles.

Despite the attractive projections, the agriculture industry may be negatively affected by the new system. To alleviate this, the excise tax on diesel fuel, which for the most part is used in the agriculture industry, will be smaller than the tax on regular gasoline. Igor Levitin also has proposed to compensate for the decrease in income to the agricultural sector not monetarily, but with the construction of roads in the countryside.

Duma deputies are planning to review the necessary amendments to the legislation as early as September, so that road construction can begin using funds from the increased excise taxes instead of the transportation tax by 2011.

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