Government May Switch To Excise Tax for Drivers

The government is considering replacing the transportation tax, an unpopular levy set by regional governments, with a larger excise tax on fuel such as gasoline starting next year, Deputy Prime Minister Sergei Ivanov said Friday.

Ivanov told a government meeting on transportation that the change would bring Russia's tax system into line with "international practice." Another possible alternative to the transportation tax would be introducing tolls for trucks weighing more than 12 metric tons, he said.

Drivers have long complained about the tax, which is an annual payment based on the type of car, its engine size and a regional surcharge. The tax applies equally to all vehicle owners, meaning that infrequent drivers must pay the same amount as regular commuters and private taxi drivers.

The tax was among the top complaints of protesters during mass demonstrations in Kaliningrad in February, forcing the regional legislature to scrap a planned hike. State Duma deputies from United Russia were forced to drop a planned increase of the tax's national base rate after a public outcry in November 2009.

The Finance Ministry began discussing ways to eliminate the transportation tax at a meeting May 20, said Alexei Sorokin, director of the ministry's property tax department, Interfax reported Friday. The ministry has until June 20 to research the possibility.

"The question is how much it will cost consumers. Because while various subsidies exist for the transportation tax, nobody will get any subsidies on the fuel tax," Sorokin told Interfax. To compensate for the lost revenue, the average excise tax on fuel would have to double, he said.

Sorokin did not say how that increase would affect prices at the pump, which the government has also sought to keep low through regular anti-monopoly service monitoring.

"We calculated that factoring the transportation tax into the excise fuel tax would increase gas prices by 50 kopeks to a ruble per liter," said Vyacheslav Lysakov, coordinator of drivers' rights group Svoboda Vybora, or Freedom of Choice, which sought to have the tax repealed last year.

"Ideally, the transportation tax would just be dropped, since enormous taxes are already being collected from drivers, including from existing excise fuel taxes, which make up two-thirds of the price of gasoline," Lysakov told The Moscow Times.

Standard 92-octane gasoline costs about 23 rubles per liter in Moscow, including the current taxes, meaning a hike of 2 percent to 4 percent, according to Lysakov's figures.

Transportation Minister Igor Levitin suggested in March the reintroduction of road funds, which would accumulate transportation-related taxes and be used for road construction. The model, used in the 1990s, was scrapped because of concerns over corruption, and now all taxes are paid into the budget without spending restrictions.

About 64 billion rubles ($2.1 billion) in revenue came from the transportation tax in 2009, Sorokin said. But that is only about half of what should have been collected, Lysakov said. Bureaucracy and a number of ways to avoid paying the tax eat into the revenue, he said.

See also:

Levitin Pushes Revival of Road Funds

State Duma Passes Transportation Tax Law Again

United Russia Tripped Up in Tax Bill Debacle