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. Last Updated: 07/27/2016

Ending Tolling Would Halve Aluminum Output, Firms Say

Russian aluminum output may fall by 300,000 metric tons in 2000 and alumina production will stop altogether if internal tolling, a way of providing tax breaks to traders, is scrapped, producers said on Tuesday.

"Around 600,000 tons of aluminum will be produced from domestic alumina this year and around half of this may be lost in 2000," Igor Prokopov, president of the Alyuminy association, which unites the country's aluminum producers, said at a news conference.

Tolling is a system under which foreign owners of alumina, the raw material for producing aluminum, import it (external tolling) or buy it domestically (internal tolling), then process it at Russian smelters and export the resulting aluminum.

Suppliers of alumina do not pay value added tax (VAT), currently levied at 20 percent, on the aluminum they export, although in the case of internal tolling they have to pay a 5 percent export duty. Suppliers pay plants a fixed processing fee.

Russia's tax ministry announced in September plans to scrap tolling next year, claiming it damaged the national aluminum industry and led to annual budget losses of $500 million.

The government may abolish only internal tolling, as scrapping external tolling would need a change to the law on VAT, which would require an amendment to be passed by parliament.

Tolling was introduced in Russia in 1992-93, initially as a temporary measure, but successive governments have had to extend the practice every year as they saw no other way of keeping smelters in business.

Russia, which needs 6 million tons of alumina to produce around 3 million tons of aluminum per year, currently imports 3.6 million tons of alumina and produces another 2.4 million domestically.

This year has seen a particularly virulent campaign against tolling, including billboards appearing across Moscow.