A better form of levying tax on oil extraction would be taxation of the additional (net) income. Such an approach would ensure an automatic differentiation of tax load depending on the specific conditions of oil production. In this case, not only a producer’s gross proceeds are taken into account (as it happens when MRET and export duties are applied), but also the cost of oil extraction in a given oil field. This regime makes it possible to create the necessary preconditions for developing new oil fields the operation of which is associated with higher capital input and exploitation and transport costs.
The amendments introduced in 2011 in the RF Tax Code have dramatically increased the rate of MRET on natural gas. Over the period of 2006 to 2010 its rate remained at the same Section The Real Sector of the Economy level, while the wholesale prices of natural gas more than doubled. As a result, the rate of MRET on natural gas during those years significantly declined both in real and relative terms (as a percentage of its price). From 1 January 2011, as index of 1.61 was applied to the tax rate, which effectively corresponded to the cumulative inflation rate over the period of 2007– 2010. However, the high profitability indices of the activities relating to the production, transmission and sale of natural gas were indicative of a lower level of tax load on the Russian gas sector as compared to the oil sector, and thus of the existence of a potential for a further substantial increase of the rate of MRET. In this connection, from the year 2012 onwards the rate of MRET levied on natural gas was raised to 509 rubles per 1,000 cubic meters, or by 2.15 times on 2011. It is envisaged that in 2013–2014 the rate of MRET on natural gas will be raised somewhat further (Table 36). At the same, a downward coefficient is to be applied to those organizations that do not own any objects belonging to the Unified Gas Supply System of Russia, or in which the stakes owned by the owners of objects belonging to the Unified Gas Supply System of Russia are no more than 50%: in 2012 – 0.493; in 2013 – 0.455; and from 2014 onwards – 0.447.
Table Rate of MRET Applied to Oil and Natural Gas Production in 2010–2010 2011 2012 2013 MRET on oil production, Rb/ton 419 419 446 470 MRET on natural oil production, 147 237 509 582 Rb/1,000 m Source: RF Tax Code.
Thus, the recently adopted decisions have significantly increased the tax load on OJSC Gazprom. That company owns the Unified Gas Supply System of Russia and derives the corresponding income from transmission and export of natural gas. For independent natural gas producers, on the contrary, the rate of MRET is only indexed according to the inflation rate and thus remains at a relatively low level (in 2012 – 251 rubles per 1,000 cubic meters).
Besides, in 2011 the scheme for levying taxes on exports of oil and petroleum products was altered, From 1 October 2011 onwards, the general rate of the export duty on oil was decreased by changing the coefficient value from 0.65 to 0.60 (Table 37). This measure resulted in a diminished tax load on the oil extracting industry, which must promote oil production.
Table Marginal Rates of Export Duty on Oil International price of Urals Rate, USD/ton Up to 15 USD/barrel From 15 to 20 USD/barrel 0.35(P–15)7.From 20 to 25 USD/barrel 12.78+0.45( P–20)7.Over 25 USD/barrel 29.2+0.65( P–25)7.Note. P is price of Urals (USD/barrel) Source: RF Law ‘On Customs Tariff”.
The rates of export duties on petroleum products are set at a lower level than those of export duties on oil, which represents a form of subsidizing Russian oil refineries and promotes exports of petroleum products. In recent years, the rate of the export duty on white petroleum products amounted to approximately 0.72 of the rate of the export duty on oil, while that on dark petroleum products – to approximately 0.39.
RUSSIAN ECONOMY IN trends and outlooks The lower export duties on petroleum products are conducive to increasing domestic volumes of oil refinement and growth of exports of its products. While the volume of oil production over the period of 2006–2010 rose by 7.5%, that of primary oil refining increased by 19.9%, and exports of petroleum products – by 36.3%. The growth by 85% of oil refining volumes over the same period occurred due to increased exports of petroleum products.
At the same time, this differentiation of export duties was by no means conducive to increasing Russia's oil refining efficiency. In 2011, the depth of oil refining in Russia was only 71%, which means that it had changed little over the previous decade (in developed countries this index now amounts to 90–95%). The growth of Russia’s exports of petroleum products was caused in the main by increasing volume of exports of fuel oil, which in Europe is used as raw material for further refining and conversion into white petroleum products.
In 2006–2010 the nearly 3/4 growth of exports of petroleum products resulted from an increase, by 55.8%, of exports of fuel oil, while the share of fuel oil in aggregate exports of petroleum products rose to 54.5%. In this connection, the share of exports of fuel oil in the volume of its output exceeded 90%.
In this situation it is becoming increasingly evident that in order to promote modernization of Russia’s oil refining industry and the depth of oil refining it would be feasible to switch over to a single rate of export duty on white and dark petroleum products, and also to approximate it to the export duty on oil. In late 2010 it was decided that, over the next two years, a single rate of export duty on petroleum products amounting to 60% of the rate of export duty on crude oil would be introduced (Table 38).
Table Rates of Export Duties on Petroleum Products Established from 1 January (Coefficients Applied to the Rate of Export Duty on Oil) 2011 2012 White petroleum products (middle and light distillate 0.67 0.64 0.products, diesel fuel, etc.) Dark petroleum products (fuel oil, lubricants, etc.) 0.467 0.529 0.Source: Decree of the RF Government of 27 December 2010, No. 1155.
However, in 2011 it became clear that the newly introduced rates had not provided an adequate solution to the problem. The volumes of fuel oil production and exports continued to grow, while the depth of oil refining remained at the same level. Moreover, in April and May 2011 some Russian regions experienced acute shortages of gasoline (‘the gasoline crisis’) that resulted from its increasing volume of exports coupled with declining volumes of production.
In that situation, in May 2011, in order to satisfy domestic demand, an increased (restrictive) export duty on oil was introduced. Then the rates of export duties on the other petroleum products were also revised. The new rates of export duties were introduced from 1 October 2011 (Table 39).
Table Rates of Export Duties on Petroleum Products Established from 1 October 2011 г.
(Coefficients Applied to the Rate of Export Duty on Oil) From 1 October 2011 through From 1 January December Commercial gasolines, straight run gasolines 0.90 0.Middle and light distillate products, diesel fuel 0.66 0.Fuel oil, lubricants, etc. 0.66 Source: Decree of the RF Government of 26 August 2011, No. 716.
Section The Real Sector of the Economy The purpose of the alterations introduced in 2011 in the taxation system is to promote oil production, to intensify modernization of the oil refining industry and to increase Russia’s oil refining efficiency.
4.5. Russian agrifood sector: performance and trends 4.5.1. General outline of agricultural performance 20 years have passed since the start of reforms in Russian agriculture. It’s a term allowing to draw some conclusions. Despite all the inconsistency, contradictoriness and non-integrity of government efforts, remarkable changes have taken place in the sector. This review is not supposed to provide a comprehensive analysis of these transformations but the partial analysis of agricultural performance in 2011 is made on the background of these 20 years.
At the moment the implementation of the first State program for agricultural development and regulation of agricultural and food markets in 2008-2012 is proceeding to completion in Russia. It was enacted in compliance with Article 8 of Federal Law No. 264-FZ of December 29, 2006 “On development of agriculture” that envisages adoption of five-year state programs. Although there are serious drawbacks in the effective Program and the mechanisms of its implementation, it has two strong points. First, it lays the foundation for relative sustainability of state policies within the program term – 5 years. Second, it determines the set of support measures to be applied and the sources of their financing from budgets of different levels, and first of all from the federal budget. One can state that the Program facilitates access to credit resources and contributes to modernization of agriculture and rural infrastructure. Still, it has smaller effect on the desired outcome – the growth of agricultural output – than such factors as bioclimatic potential and rural population size in a certain region. The latter assertion is supported by a set of studies1.
In Russia climatic conditions are one of the main factors of increased riskiness of farming in the country. The previous 2010 was extremely unfavourable, with drought afflicting 43 regions-constituents of the Federation and resulting in a sharp drop of yields and outputs of basic farm crops. One could expect that dramatic decrease of grain output and poor supply of feeds would affect the performance of livestock sector2.
However, the implemented measures of government regulation, and first of all the ban on export of grain3, allocation of additional Rb 5bn for the preservation of breeding stock and Rb E.Gataulina. Estimated effect of state regulation on development of agricultural production. // Mathematical methods, models and information technologies in the agrifood sector (Nemchinov’s readings): Proceedings of Russian Independent Agricultural Economics Association. Issue 15. Publishing house of Russian State Agrarian University – MTAA named after K.A.Timiryazev, 2011. Pp. 84-89.
By the beginning of January 2011 the available supply of feeds in corporate farms was 25.2% below the indicator of early 2010. Taking into account that the share of feed grain (except corn) in the structure of grain output reduced, the situation with feed supply caused concern.
In general the effect of grain export ban is estimated as negative: it impaired the image of Russia as a reliable partner, weakened the hard-won positions of exporters on the world grain market, reduced profitability of agricultural producers in the year of low grain yields, entailed non-transparent procedure of distributing grain to large livestock producers, etc. However, the ban also had positive effect on the livestock sector. Certainly, its primary beneficiaries were poultry and pig plants.
RUSSIAN ECONOMY IN trends and outlooks 9bn for the partial compensation of feed costs1 to pig and poultry farms as well as payment of subsidies for the maintaining of cow inventories have helped to prevent production decline in dairy farming and sustain upward trends in livestock population and output of pig and poultry meat.
The past 2011 was favourable for Russian agriculture. The index of agricultural production2 amounted to 121.8%3 (in 2010 – 88.7%). This is the best indicator since 1990 evidencing rapid recovery of agriculture after the hard 2010 (Fig. 52).
The gross output of grains and grain legumes amounted to 97.5m tons in bunker weight. It exceeded the past year crop by almost 50%. In the last 20 years gross outputs were higher only in 2008, 1992 and 1993. The gross output of sugar beets – about 45m tons – is more than twice above the previous year indicator; moreover, it’s the highest yield of this crop ever harvested in Russia. The yield of sunflower seeds – 9.4m tons – is also the highest ever in the Russian history. Yields of other oilseeds, i.e. soybeans and rapeseeds, are record as well. The outputs of potatoes and vegetables exceed last year indicators. The expansion of areas under 2012 winter grains lays the basis for further growth of gross grain output in 2012 provided that climatic conditions are favourable. Gross outputs of grains and grain legumes approach those of the Soviet period while the ones of sunflower seeds, sugar beets and vegetables have already surpassed the pre-reform indicators. Taking into account the reduction of rural population and employment in agriculture one can state the improving self-sufficiency in these products and higher productivity of labour as compared with the pre-reform level (Table 40).
Fig. 52. Index of agricultural production Report of the RF Minister of Agriculture E.B.Skrynnik at the All-Russian conference “On the implementation of measures envisaged in the State program for agricultural development and regulation of agricultural and food markets in 2008-2012” on November 25, 2011, Moscow. http://mcx.ru/news/news/show/5107.195.htm It is calculated as the percent ratio of agricultural output of the current year to that of the previous year. Comparable prices are used – the ones of the previous year.
Data as of November 1, 2012.
% Section The Real Sector of the Economy Table Gross output of basic farm crops, million tons Annual average 2005 2008 1986-1990 1991-1995 1996-Grain (after primary processing)) 104.3 87.9 65.2 74.3* 102.8 92.Potatoes 35.9 36.8 34.5 37.3 28.9 32.Vegetables 11.2 10.2 11.4 15.2 13.0 13.Sunflower seeds 3.1 3.1 3.3 6.4 7.3 9.Sugar beets 33.2 21.7 14 21.4 29.0 43.* from 2005 to 2011 adjusted for weight after processing with coefficient 0.95.
The structure of areas under crops is changing. By the end of 2011 the share of grains and grain legumes in the total acreage of basic crops grew by 4% as compared with 1990 and reached 57.5%; the share of industrial crops almost tripled (up 9.6%) and amounted to 14.5%.
This increase is due to a notable reduction of the share of feed crops – from over 38% to 24% (Fig. 53).
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