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. Last Updated: 07/27/2016

Road Fund to Be Dragged Into Light

A ride on any of the nation's pothole-ridden roads would excuse anyone for thinking money is short for maintenance. The truth, however, is far from it.

"Do you know how much the country's road fund is worth?" President Vladimir Putin asked in an interview this month with Izvestia newspaper. "150 billion rubles, or $5 billion [a year].

"In other words, a total of $30 billion," the president added, apparently referring to how much cash has run through the road fund since its creation eight years ago. "I am sure that if these $5 billion were really spent on building roads, we would now have only highways and autobahns in Russia."

The amounts of off-budget cash moving around are enormous, given that the 2000 federal budget is worth about $25 billion. And the president is not the only critic of a fund some see as tangled in regional interests and corruption.

The fund f which receives a total of 130 billion rubles each year (about $4.7 billion at current exchange rates) f is administered by the Russian Road Agency, which is headed by Vitaly Artyukhov, a former tax minister.

The agency is now undergoing reorganization, with plans afoot to bring it out of the shadows and into the budget as part of the Transport Ministry.

Details of the plan will only be unveiled next month. But it would apparently mean cutting regional leaders out of the roughly 100 billion rubles the fund sends each year to the regions.

Critics say those hard-to-track off-budget funds tend to be diverted by governors to their own ends.

Among those critics is Finance Minister Alexei Kudrin, who blasted the road fund this month for creating "a fertile ground for corruption." Kudrin accused the fund of "misusing funds en masse."

However, road agency spokeswoman Nadezhda Klimyonova defended the fund.

"The fund underwent very strict audits by the Audit Chamber and the presidential administration," she said. "Some of the checks showed the money could have been used more efficiently, but it was all used for its stated purposes."

The road fund's coffers are filled by a so-called turnover tax, a burdensome and widely disliked 2 percent levy on the money turned over annually by each business, regardless of its profitability.

An end to the turnover taxes f in addition to the road tax, there also exists a further 2 percent "infrastructure" tax f was a key part of President Putin's tax reform plans.

"It's the worst form of tax," said Duma Deputy Alexei Mikhailov, a member of the Yabloko party. "It's the biggest task for reform. Taxes must be taken from those who earn money, not those struggling to stay afloat."

Much to the government's chagrin, however, the State Duma voted against putting the turnover tax out of its misery earlier this month, after regional governors, who sit in the Federation Council, lobbied hard to retain the system.

The Duma partially obliged by electing to retain a 1 percent turnover tax to feed the road agency until 2003, when that tax, too, is slated for abolition.

Even then, the road fund will see 130 billion rubles next year as before f with money from the budget making up what the new, smaller turnover tax does not raise, the road agency's Klimyonova said.

Opponents of the turnover tax said seeing it partly reduced was better than nothing.

"Decreasing the amount by three-quarters from 4 percent to 1 percent is a welcome step," said Renaissance Capital tax manager Pavel Vasilyev. "Turnover taxes don't exist in any other country that I know of."

"Of course, it would have been better to abolish the turnover tax altogether," said Yabloko's Mikhailov.

"But the compromise is no tragedy."

The tax changes must still be approved by the Federation Council before it can be signed into law. The governors, angered by a Kremlin drive to weaken their powers and concerned about plans to keep more and more of the nation's revenue in Moscow, are pondering raising the turnover tax back up to 2 percent.

The newspaper Moskovsky Komsomolets, for example, laid out the Yury Luzhkov position by arguing the city of Moscow could lose billions of rubles if the fund is transformed as planned.

"Good-bye maintenance and construction of new roads," the paper wrote. "The situation is critical. Instead of 17 [billion] to 18 billion rubles f we will receive only 900 million rubles.

"Federal authorities are, for some reason, convinced that after the creation of a single system for turnover taxes, money will flow into the treasury," the paper added. "But that's completely doubtful, if one knows the Russian mentality."

The road fund was not always such an object of scorn. When it was founded in 1992, it was characterized as a temporary reform by then-acting Prime Minister Yegor Gaidar f one designed to rescue long-neglected civilian infrastructure.

"Under the Soviet Union, funding roads was always secondary after such top priorities as the military," said Givi Matchavariani, a senior researcher at Moscow's Institute of World Economy and International Relations. "That's why the roads were so bad.

"When roads began to be funded separately, the government didn't have a chance to take money out for other purposes," he said.

Renaissance Capital's Vasilyev concurred. "It did make sense to have a road fund," he said, "even if it didn't make economic sense to have a turnover tax."