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. Last Updated: 07/27/2016

Pipeline Levy to Recoup Loss of Tariff

The Russian government will introduce a pipeline tax to make up for revenues lost from the abolition of oil export tariffs, First Deputy Prime Minister Vladimir Kadannikov said Tuesday.

Kadannikov also said the federal budget has raised less than two-thirds of planned revenues in the first two months of the year, making the task of budgeteers already stretching to meet recent presidential spending pledges even harder.

Under the $10.2 billion loan agreement with the International Monetary Fund reached last week, the government pledged to slash export tariffs on oil and gas from the current 20 ecus to 14 ecus from April 1, and abandon the practice altogether in July, Kadannikov said. To make up for the lost tariff revenue -- $3.2 billion in 1995 -- the government will boost excise duty by 3 ecus from its present level of 39,400 rubles ($8.20) a ton, and make up the other 17 ecus in the form of a pipeline tax, Kadannikov said.

He did not give details about how the pipeline tax would be implemented.

Fuel and Energy Minister Yury Shafranik and Russian oil companies have criticized proposals to raise the bulk of lost tariff revenue through increased excise taxes, saying it would have a negative ripple effect on the economy by driving up energy prices.

Kadannikov appeared to sympathize with their reasoning.

"If the whole [oil export tax] of 20 ecus is added to domestic excise duty, this will result in a 30 percent increase of the gasoline prices in the country, and this would hit back at the energy sector starting a chain reaction for the rest of the economy," Kadannikov said.

But "taken together," he said of the modest excise hike and the pipeline tax, "this does not produce such a reaction."

A representative of a major Russian oil company who asked not to be identified said the replacement of export tariffs with a pipeline tax amounted to little change for the Russian oil industry.

"The IMF wanted them [the government] to scrap the oil export tariffs, and that's what they've done, but only on paper," the representative said.

Raising money from the oil industry will be essential for the government if it is to meet a series of recent presidential spending pledges and stay within its tight 1995 budget.

So far, the federal budget has only received 60 percent to 65 percent of planned revenues for January and February, while the projected budget deficit for March is estimated at around 10 trillion rubles, Kadannikov said.January and February are traditionally "bad" months for collection of taxes in Russia and the government expects a slight improvement in March, the minister said.

But Andrei Illarionov, director of the Institute for Economic Analysis, told a press conference Tuesday that revenues were coming in even more slowly. Through the first six weeks of the year only about 15 trillion rubles were collected in taxes while the projected budget expenditure exceeded 43 trillion rubles.

"What actually has happened does not fit even the traditional seasonal nature of the Russian economy; it rarely happens that early in January a sufficient setback is observed," he stressed.

The federal budget for 1996 envisages an overall deficit of 85.5 trillion rubles, or 3.85 percent of GDP.