United Russia Tripped Up in Tax Bill Debacle

United Russia’s majority in the State Duma suffered a major blow to its image Wednesday, when the Federation Council voted down controversial tax hikes on car owners that were broadly criticized by auto owners, opposition parties and eventually the Kremlin.

The about-face was one of the very few instances where the authorities have backed down on plans because of a public outcry, and it was the latest victory for well-organized drivers’ groups. The changes, intended to help plug a budget deficit next year, would have doubled the base rate of a transportation tax that is key to funding some regional budgets.

It is also a major embarrassment for United Russia, which has a large enough legislative majority to change the Constitution unilaterally, and feeds perceptions that the party is following orders rather than generating ideas.

Oleg Morozov, a deputy speaker in the Duma for United Russia, said Wednesday that lawmakers would pass the new amendments Friday, which would bring the base rate back to its current level and leave regions to decide on the actual annual payment that car owners will have to make.

Duma Speaker Boris Gryzlov, also from United Russia, said Monday that the Federation Council should send the freshly passed bill back to the Duma for additional work, following criticism from Sergei Naryshkin, head of the Kremlin administration.

“Russian citizens, car enthusiasts, professional drivers and public organizations have spoken against raising the rate of the transportation tax,” Naryshkin said in comments carried on United Russia’s web site.

On Friday, United Russia deputies voted unanimously in the third and final reading to double the rate, despite opposition from the remaining three parties with seats in the Duma. Federation Council Speaker Sergei Mironov, of the left-leaning pro-Kremlin Just Russia party, has sought to cast the debacle as evidence of the problems with United Russia’s dominance in the parliament.

The bill is also a major embarrassment for Gryzlov ahead of a United Russia party congress in St. Petersburg on Friday and Saturday, where officials will discuss party ideology and ways for carrying out orders in President Dmitry Medvedev’s state-of-the-nation address.

Sergei Kanayev, a leader of the Federation of Russian Car Owners, said before the reversal that the group had collected more then 80,000 signatures against the measure.

Dmitry Oreshkin, an analyst with the Mercator think tank, suggested that the Kremlin’s rejection of the government-authored bill indicated that Medvedev and Prime Minister Vladimir Putin, United Russia’s leader, could be contesting each other’s authority.

“Not all is smooth in their duumvirate,” Oreshkin said. The decision to drop the bill after the angry reaction could also indicate that Medvedev’s liberal thinking was winning over Putin’s more Soviet-style mentality, which disregards public opinion, he said.

But Alexei Mukhin, an analyst with the Center for Political Information, said the Kremlin’s reaction indicated that Medvedev and Putin feared that their approval ratings would drop if the unpopular bill became law, which could damage “social stability.”

The Kremlin and the government failed to take into account an almost 10 percent drop in their ratings in some regions after the Oct. 11 elections, which were widely criticized for voting manipulations that favored United Russia, Mukhin said. United Russia, which “claims to become the party of the tandem” of Medvedev and Putin, “doesn’t want to quarrel with the Kremlin,” he said.

Explaining his sudden reversal after unwavering support for the bill, Gryzlov said Tuesday that some regional authorities wrongly thought that doubling the base rate meant that they would have to double the current transportation tax in their regions, which he called a “misreading.”

United Russia said revised amendments, to be considered Friday, would give regions the right to increase or lower the transportation tax, a measure that car owners also oppose.

“If in some region the transportation tax is increased, it will be a signal for us to organize demonstrations,” Kanayev told The Moscow Times.

Angry drivers have proven that they can be a powerful force, capable of damaging the Kremlin’s credibility.

Most notably, motorists from around the country united behind Oleg Shcherbinsky, who was involved in a 2005 accident that killed the Altai region governor, Mikhail Yevdokimov.

Yevdokimov’s car was speeding to get the governor to a regional celebration and hit Shcherbinsky’s Toyota. A criminal case was opened against Shcherbinsky, who was accused of violating traffic rules by not allowing the governor’s car to pass first.

Thousands of car owners and opposition activists rallied to support Shcherbinsky, who was later found not guilty. In that case, United Russia also eventually backed down to support Shcherbinsky, after accusing opposition parties like the Communists and Yabloko of using the incident to score political points.

Kanayev cited the Shcherbinsky case as an example of drivers’ unity, adding that “people are pushed to revolt.”

Personal cars, long out of reach for many Russians, have become a thing of pride in recent years, with the past decade’s oil boom bringing the number of car owners to more than 40 million.

“The car has a special meaning for people here. Many take on a lot of debt to own a good car because it’s a part of their image. I knew people who literally lived in their cars in the ’90s,” said Andrei Kalashnikov, a Moscow psychologist.

Fearing possible anger in the country’s two largest cities, St. Petersburg Governor Valentina Matviyenko and Moscow Mayor Yury Luzhkov called for the tax not to be doubled next year.

Alevtina Tsepeleva, an expert with the Vladimir regional legislative assembly’s budget committee, told The Moscow Times that while the majority of her committee was against the increase of the base rate, the local government supported the measure.

Under the new rules, the base rate would be 10 rubles (35 cents) for every unit of horsepower for engines with up to 100 horsepower. For 150-horsepower engines, it would be 14 rubles per unit, while for 200- and 250-horsepower engines the rate would be 20 rubles and 30 rubles per unit, respectively. For anything above 250, it would be 60 rubles.

The regions will be able to decrease the base rate by up to 90 percent, rather than 50 percent now, and will not be able to increase it by more than fivefold.

For a 2009 Ford Focus with a 100-horsepower engine, the base tax would be 1,000 rubles ($35).

Kanayev said his federation has long sought to have the rules changed to take into account the age and model of the car, rather than the size of the engine. Drivers also complain that the tax unfairly hits those who use their vehicles rarely.

The organization will soon appeal to the Supreme Court to challenge the law, proposing to raise the funds from gasoline, instead. “The tax should take into account the price of the car. The owner of some run-down but powerful jeep has to pay the same amount as the owner of a less powerful but brand-new car,” he said.

United Russia opposes the proposal to shift the tax to gasoline.

“It would be unfair toward those car owners who have inexpensive cars with underpowered engines,” United Russia deputy speaker Vyacheslav Volodin said.