Regions will loose major tax income

Several of Russia’s regions can end up with significantly less money with the governmental proposal presented on Thursday. According to figures from the finance ministry, the regions received 79 billion rubles (USD 2.6 billion) in 2008. The ministry says the amount was equal to two percent of all tax and non-tax revenues of the regional budgets, writes Eurasia Daily Monitor.

At present, 95 percent of the taxes from extraction of natural resources in Russia are transferred to the federal budget in Moscow, while 5 percent goes to the budgets of regional entities.

Vladimir Putin said in his opening remarks at Thursday’s government session that the decision to transfer 100 percent of the taxes from extraction of natural resources will increase the federal budget by at least 46 billion rubles in 2010. A transcript of Putin’s speech is published by ISRIA.com, a Geopolitical and Diplomatic news monitor.

The government intends to partially compensate the regions for the loss of this tax income.

- Of course, we should consider a measure to make up for this revenue shortfall of the regions, Putin said. – We will stimulate subsidies to balance the budget. Their size will depend on the current share of natural resources tax revenues in the budget of each particular region, Putin said.

The decision will concern 32 of Russia’s regionsregions, among them the Republic of Komi and Arkhangelsk Oblast, both heavily dependent on natural resources tax and transfers from the federal budget.

BarentsObserver.com published a report this spring that shows a significant drop within most parts of the regional economy in Arkhangelsk Oblast. Investments in the region were down three times compared with 2008 figures.

- Given that President Dmitri Medvedev and Prime Minister Vladimir Putin have said that the regions bear primary responsibility for fighting unemployment, this plan to shift resources away from them to the center creates a massive unfunded liability and thus creates additional incentive for anti-Moscow politics in some regions, writes Eurasian expert Paul Goble in a comment in Window on Eurasia.

Revenue for this year’s budget has fallen by a third after a fall in oil prices and a depleted tax base. The Finance Ministry is forecasting a deficit this year of 9.4 percent of gross domestic product, writes The Moscow Times.

Earlier this week BarentsObserver.com reported that Yamal-Nenets autonomous District governor Yury Neyelov and Vladimir Putin decided to work out a plan for setting mineral taxes on all gas fields on Yamal to zero. The governor acknowledged that this will lead to lower tax incomes for the region, but said that other incomes from the project would make up for this that the state would earn more on this arrangement.