Russia Has $600bn In Reserves, But Raises Taxes Anyway

by Tatiana Smolenska, Tax-News.com, Moscow

28 December 2007

With foreign exchange reserves standing at $463bn, the fourth highest in the world, Russia is nonetheless increasing its oil export taxes by around 20% on 1st February, 2008.

Alexander Sakovich, deputy head of the Finance Ministry's customs department, said on Christmas Day that the tax will likely exceed $330 per tonne, up from a current $275.40 per tonne. Russia revises its oil export duty every two months.

Export taxes on refined oil will also rise, reaching $235 to $237 a ton for light products, such as gasoline, and $127 a ton for heavy products, such as fuel oil, Sakovich said.

Oil, at the head of a list of commodities that Russia produces in abundance, has been the making of Russia's financial strength in the last few years. Since 1999, oil prices have increased by more than 600%. Natural resources contributed around 28% to Russian GDP growth during 2000-2006, and almost 50% of tax revenues are directly based on the oil and gas industry.

Apart from its massive foreign exchange reserves, Russia has also created a $151 billion stabilization fund, a la Norway, which the Finance Ministry says it will keep entirely in sovereign bonds next year. Part of the fund has been labelled 'The National Welfare Fund' and there is discussion as to whether to spend some of this money on improving life for poorer people.

But Vladimir Putin hardly needs any help in his political odyssey at present, so perhaps the Kremlin will decide to keep its piggy bank intact in anticipation of a snowy day.

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