Publication: The Role of Natural Resources in Fundamental Tax Reform in the Russian Federation
Date
2002-03
ISSN
Published
2002-03
Author(s)
Bosquet, Benoit
Abstract
The Russian Federation has one of the
richest natural resource endowments in the world. Despite
their importance in the Russian economy, natural resources
do not contribute as much as they could to public revenues.
Large resource rents (excess payments, or above-normal
profits generated by natural resources in scarce supply) are
dissipated through subsidies and wastage, or appropriated by
private interests. Failure to tax this rent means that taxes
must be levied elsewhere (on capital and labor) to sustain
revenues, thereby depressing investment and employment, or
that potential revenues are foregone. Failure to reinvest
rent means that Russia perpetuates the tradition of
exporting low value-added raw materials and excessive
capital outflows, and retards its transition to sustainable
economic development. The author provides estimates of the
average and total current rent on crude oil, natural gas,
and round wood in Russia. The sum of appropriated rent on
oil and gas was estimated at US$9 billion in 1999 (in excess
of $15 billion in 2000), or about 18 percent of consolidated
tax revenues. The appropriated rent on round wood was
estimated at US$191-1,032 million. A more appropriate
natural resource taxation system would enhance the fiscal
role of natural resources as well as create better
incentives for resource conservation and environmental
protection. Two conditions further reinforce the appeal of
such a reform. First, the state still owns most of the
natural resources, which theoretically facilitates change in
resource pricing and taxation. Second, the cost of adjusting
the tax system is relatively low at this time since Russian
tax policy is undergoing thorough reform. Increasing rent
taxation should be relatively straightforward since the
system already exists. What mainly needs to be done is to
differentiate the fees to reflect objective rent-generating
conditions by withdrawing the rent and imposing higher taxes
on profitable resource deposits. A seemingly desirable
instrument-true differentiation of rental payments-does not
exist in Russia despite legislative provisions that it
should. Several natural resource taxes are specific taxes
(set per volume), regardless of the market price or
production cost. Such taxes favor profitable deposits and
penalize marginal ones. The author's study should be
given serious consideration in the renewed debate on tax
reform and in the context of Russia's structural reform
program. It is in line with the proposals of the new
governmental economic strategy, particularly with boosting
the share of natural resources in generating revenue and
reducing income tax rates. The extra advantage to rent
taxation and revenue recycling is that it would allow the
government to lower the tax burden without leading to a
budget deficit.
Link to Data Set
Citation
“Bosquet, Benoit. 2002. The Role of Natural Resources in Fundamental Tax Reform in the Russian Federation. Policy, Research working paper series;no.
WPS 2807; Policy Research Working Paper;No.2807. © World Bank, Washington, D.C.. http://hdl.handle.net/10986/14329 License: CC BY 3.0 IGO.”
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