Further Calls For Oil Tax Cuts In Russia

by Tatiana Smolenskaya, Tax-News.com, Moscow

11 September 2008

A Kremlin insider has spoken out this week to insist that the Russian Finance Ministry needs to give more support to the economy by further cutting oil taxes.

Arkady Dvorkovich, an economic aide to President Dmitry Medvedev, told the Reuters Russia Investment Summit this week that should oil taxes not be cut further, Russian oil output may fall even further than it already has.

Dvorkovich's announcement comes in contrast to Finance Minister Alexei Kudrin's proposal to raise oil taxes.

"His opinion is that taxes should rise. I think it is absolutely unacceptable," Dvorkovich commented, adding:

"We think we could afford a certain reduction in tax."

Mr Dvorkovich added that reducing oil tax would encourage the country's smaller businesses to expand and pay larger taxes.

Kudrin, as the guardian of the government's purse strings, has become an increasingly vocal opponent of new proposals to cut taxes, warning that Russia faces a shortfall in its pension system as the population grows older.

Draft proposals unveiled by Kudrin last month suggested that the unified social tax, which currently underpins the state pension system, should increase to 24.7% from its current level of 21.5%. The plan also called for a proportion of oil revenues to be diverted from the Reserve Fund, which currently tops up the government's budget, to the National Welfare Fund, from which pensions are paid.

President Medvedev is due to announce his decision on oil taxes in October.

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