Should one consider main figures ofdistribution of federal financial aid to territories of the Federation from thepoint of view of regions one should note that regional budgets become much moredependant on federal financial aid as compared to previous periods, which isexplained by the abovementioned process of centralization of tax receipts inthe federal budget. The total share of federal financial aid in revenues ofconsolidated budgets of territories of the Federation in 2001 equalled to 17%as compared to 9% the year before; the share of expenditures of consolidatedregional budgets financed by federal means in the same period grew from 8% to15%. At the same time the list of regions that have budgets most dependant onfederal financial aid (the so called “highly granted regions”) as compared toprevious years has hardly changed: on that list as before (in addition to theChechen republic) are The Republic of Tyva, Ust-Ordynsky Buryatsky autonomousokrug, the Republic of Dagestan, Komi-Permyatzky autonomous okrug, the Republicof Ingushetiya, the Jewish autonomous okrug, Aginsky-Buryatsky autonomousokrug, the Karachayevo-Cherkesskya Republic, the Koryak autonomous okrug, theKabardino-Balkarian republic, the Republic of Northern Osetiya, the Republic ofAdygeya, Bryansk oblast, the Amur oblast, Ivanovo oblast. Meanwhile, ascompared to the previous year when the share of expenditures of the twenty mostdependant regions financed by federal means varied between 43% and 87%, thedispersion in 2001 varied in range from 48% to 86%.
On the whole the analysis of quantitativeshowings in the sphere of inter-budgetary relations and regional financesallows us to make a conclusion that the process of centralization of budgetrevenues is accompanied by an adequate growth of the size of federal fianancialaid to the regions, which hightens the role of the federal budget as amechanism of inter-regional redistribution of budget revenues. In case thistendency is accompanied by a better objectivity in distribution of federalfinancial support to the regions, that is volumes of granted means correspondto the revenue potential and (or) budget expenditure requirements ofterritories of the Federation, the mentioned process shall lead to a higherdegree of inter-territoral levelling of abilities of public authorities of theterritories of the Federation to provide public benefits on their respectiveterritories.
Tax Reforms and Inter-Budgetary Relations
In 2001 there were adopted a number ofchanges in the tax and duties legislation which to a considerable degreeinfluence distribution of tax receipts to budgets of different levels and inthis way influence inter-budgetary relations in Russia. Among the mostimportant legislative innovations should be mentioned the adopted chapters ofthe Tax code about profit tax, tax on mining operations and sales tax. Let ustake a closer look at the mentioned changes from the point of view of theirinfluence on public finances in regions.
Inter-budgetary distribution of profit taxreceipts from organizations. The procedure of profittax fixing and distribution of tax receipts among budgets of different levelswas established and started functioning on January 1, 1994: the profit tax paidto the republican budget was fixed at the rate of 13%, while it was allowed tothe corresponding public authorities to fix the rate of the profit tax paid tothe budgets of territories of the Federation at the highest level of 25% forenterprises and organizations and 30% for banks and insurers. New profit taxrates started functioning in the Russian Federation in the second quarter of1999: the 11% rate for taxes received by the federal budget and a maximum of19% for taxes paid to the budgets of territories of the Federation. At the sametime public authorities of the territories of the Federation were allowed toestablish extra profit tax allowance for taxes paid to their respectivebudgets.
Starting in 2001 pursuant to article 8 ofthe Federal law “On enactment of the second part of the Tax Code of the RussianFederation and introduction of changes to certain tax legislative acts of theRussian Federation” local governments were given the right to fix profit taxrates for enterprises registered on their territories at a level that does notexceed 5% and legislative (representative) bodies of territories of the RussianFederation and representative bodies of local administrations were allowed tofix extra tax allowances for certain categories of taxpayers in profit tax fororganizations within the limits of tax amounts payable to their respectivebudgets.
In 2001 a new chapter of the Tax Code of theRussian Federation, chapter 25 “On profit tax paid by organizations” wasadopted, it will enter info force on January 1, 2002. Pursuant to the new part1 of article 284 of the Tax Code the procedure of fixing tax rates and taxallowances by public authorities of different levels is changed: regionalauthorities get their right to fix profit tax rates for organizations withintax amounts credited budgets of territories of the Federation within the limitsbetween 14.5% and 10.5%, the federal budget will receive revenues from this taxcollected at the rate of 7.5%, local budgets at the rate of 2%. At the sametime all allowances on this tax will be abolished, disbursements accepted asdeductions from the taxable base will be determined in the Tax Code of theRussian Federation. It is evident that such considerable changes of tax ratesand conditions of taxation cannot but influence the pattern of distribution oftax receipts among budgets of different levels. Though due to the reason thatthe changes introduced to the laws are substantial, it will be quite a problemto make forecasts about directions and scopes of changes of tax receiptspattern of distribution.
Inter-budgetary distribution of taxreceipts arising from taxation of natural resources. Receipts from all control taxes collected on the territories ofautonomous okrugs are entered to their budgets according to fixed norms and arenot subject for redistribution among budgets of okrugs and krais (territories)and oblasts that they are parts of. Payments for use of natural resources areno exception in spite of the fact that several autonomous okrugs(Yamalo-Nenetz, Khanty-Mansi and Taimyr in particular) possess stocks ofhydrocarbons and other mineral resources of national importance. Payments forextraction of hydrocarbons and other mineral resources are entered into budgetsof autonomous okrugs pursuant to a singe norm equal for all regions. To avoidconflicts arising from these tremendous income sources between autonomousokrugs and territories (oblast) that they are parts of, federal authoritiesadopted a decision that okrugs shall transfer to the budgets of correspondingkrais (oblast) half of the share of revenues from mining operations payable tothe federal budget.
Thus, pursuant to article 42 of the Law ofthe Russian Federation “On natural resources” in its wording that was validuntil the beginning of 2002 there existed the following patter of distributionof revenues from mining operations. According to the singe rule payments forextraction of hydrocarbons were distributed between budgets in the followingway: local budget –30%, regional budget –30%, the federal budget – 50%; payments for other mining operations were distributed asfollows: local budget –50%, regional budget –25%, the federal budget – 25%. But in case of mining operations on the territory of anautonomous okrug that is a part of a krai or an oblast payments for miningoperations were entered into budgets of the krai or oblast as a half ofrevenues received by the federal budget. Reasoning from the above mentioned onecan state that equality of budgetary rights of all territories of the RussianFederation in this respect was ensured at the expense of the federal budget.
On January 1, 2002 pursuant to federal lawNr. 126-FZ “On introduction of changes and additions to part two of the TaxCode of the Russian Federation and several other legislative acts of theRussian Federation, on cancellation of several legislative acts of the RussianFederation” there was introduced a new tax on extraction of natural resources(the tax that substitutes the presently collected payments for mineralresources, oil and gas condensate excise-duties and payments for reproductionof sources of minerals and raw materials). In connection with that there areestablished new rules for distribution of tax receipts between the RussianFederation, krai (oblast) and autonomous okrug as its part. First of all taxreceipts arising from extraction of hydrocarbons will be distributed accordingto the following proportion: 74.5% to the federal budget, 20% to the budget ofthe autonomous okrug, 5.5% to the budget of the krai or oblast. 80% of taxreceipts generated on a territory of the Federation that is not an autonomousokrug that is a part of an oblast or krai shall be entered into the federalbudget, 20% shall be credited the budgets of the territories of the Federation.Secondly, the amount of mining operations tax generated by extraction ofgenerally found natural resources shall be entirely credited budgets ofterritories of the Federation.
As a result of adopted changes one retainsthe situation when extra tax revenues of the budget of a territory of theFederation arising from extraction of hydrocarbons on the territory of anautonomous okrug that is a parts of this territory are ensured at the expenseof means actually meant to be paid to the federal budget. But in contrast tothe situation before 2002 losses of the federal budget that equalled to a halfof its share of total revenues are now limited to a sum, which is equivalent to7% of tax receipts (on the other hand it should be noted that this figure isnot completely comparable to previously valid proportions, because the new taxwas introduced instead of three taxes that were collected before).
It is also worth noting that tax paymentsfor mining operations to the budget of the krai or oblast of the total sum oftax receipts originating on the territory of an autonomous okrug that is a partof an oblast or krai at the expense of the federal budget’s share are only made in case ofextraction of hydrocarbons. In case of other types of mining operations(excluding generally found natural resources tax receipts from which areentirely credited budgets of territories of the Federation) the federal budgesince 2002 is credited 40% of receipts from mining operation taxes, budgets ofterritories of the Federation get 60% of receipts, while the procedure ofdistribution of tax receipts between budgets of territories of the Federationand budgets of their autonomous okrugs shall be established by agreementsbetween the autonomous okrug and the territory of the Federation.
Revenues of regional budgets and sales tax.As we have already pointed out in our survey “RussianEconomy in 2000: Trends and Outlooks” at the beginning of year 2001 theConstitutional court ruled that certain provisions of the federal law “On theframe of tax system in the Russian Federation” related to the sales tax wereinconsistent with the Constitution of the Russian Federation.
In its ruling the Constitutional Court saidthat starting on the 1st ofJanuary 200224 in case provisions of the law “On the frame of tax system”declared inconsistent with the Constitution they shall be abolished. Thisprovision induced the Government to present a draft of Chapter 27 of the TaxCode “On the sales tax” which didn’t contain the provisions that had been declared invalid by theConstitutional Court. At the same time the law on introduction of this newlegislative act envisages that the sales tax shall be abolished as of the1st of January200425. By results of year 2001 sales tax receipts amounted to 5.2% oftax receipts in consolidated regional budgets. Obviously federal authorities in2002–2003 will face thetask of working out means to outweigh revenues lost by regional budgets due toabolition of the sales tax.
Inter-BudgetaryRelations: the Law onthe Federal Budget for 2002
The law on the federal budget for 2002envisages a number of changes in the system of financial aid from the federalbudget to budgets of territories of the Federation, which don’t have such a decisive character asin previous years. The law envisages allocation of 275.2 billion roubles (3% ofGDP) for financial aid to budgets of other levels, which exceeds the amounts offinancial aid to budgets of other levels planned for year 2001 (the law on thefederal budget for 2001 envisaged total allocations of 210 billion roubles or2.4% GDP for sub-national budgets). It should be pointed out to a growth offederal financial aid to budgets of other levels in the laws on federal budgetsfor latest years: in this way the law on the federal budget for 1999 envisagedallocation of means equal to 1.1% GDP to budgets of other levels (by theyear’s results it wasfinanced 1.3% GDP), for year 2000 these spendings were planned at the level of1.3% GDP and executed in the amount of 1.4% GDP.
It should be pointed out that the plannedgrowth of financial aid in question in the latest laws on the federal budget ascompared to previous periods is caused both by a direct increase of amounts offinancial aid distributed among regions as a result of centralization in thefederal budget of certain types of tax receipts (mainly value-added tax andincome receipts) and accumulation under the item “Financial aid to budgets ofother levels” in the law on the federal budget of means that had never beenplanned and distributed among regions in a budget act before.
Under the item “Financial aid to budgets ofother levels” the law on the federal budget for 2002 envisages the followingtypes of financial support:
- transfers from the Fund of support ofterritories of the Russian Federation (including financial support of “Northerndeliveries” and subventions to compensate for electric power tariffs for theterritories of The Far East and Arkhangelsk oblast;
- subventions and subsidies from theCompensation fund;
- subsidies from the Fund of Co-Financing ofSocial Expenditures:
- subsidies from the Fund of Reformation ofRegional Finances;
- financing of federal programmes ofregional development at the expense of the Fund of RegionalDevelopment;
- grants and subventions to budgets ofclosed administrative-territorial units;
- financial support of the resort of thecity of Sochi;
- financial development programme for“science cities”;
- financing of the National contest “Themost comfortable city in Russia”;
- financing of works of collection andreclamation of radioactive waste;