On the abolition of the motor vehicle tax

On 23 May, Russian President Vladimir Putin signed the law on the distribution of revenues fr om excise duties on fuel. According to the law, starting from 1 June, 2016, the standard distribution of revenues from excise duties on petroleum products will be changed: 12% of them will be transferred to the federal budget, 88% – to regional budgets.

Since 1 April, 2016, the excise duties on fuel have risen 2 rubles per litre of gasoline and 1 ruble per litre of diesel. It is planned that half of the additional revenues from excise duties will be transferred to regional road funds, and the other half – to the federal budget.

The current system of motor vehicle taxation causes great debate in society: since the excise duties were included into the cost of gasoline and diesel fuel, the rise in prices on petroleum products has been observed. At the same time, the annual obligation to pay the motor vehicle tax depending on the capacity of the car remains in force. This tax rate varies greatly depending on the region. For example, in Moscow, one has to pay 2900 rubles in taxes for a 116 hp vehicle, while in the Chechen Republic, one does not have to pay any taxes at all for a 150 hp vehicle.

As is known, this tax has little effect on the development of regional road facilities: transport tax revenues go to the region wh ere the motor vehicle is registered, which does not account for the impact of transit traffic on the road surface.

In general, the collection of excise duty when purchasing motor fuel and engine oils establishes a more equitable taxation (when the amount of tax is determined by the intensity of vehicle use), but at the same time preserving the obligation to pay the motor vehicle tax creates additional tax burden for car owners.

One-time cancellation of the motor vehicle tax can lead to a shortfall in income of regional budgets in the amount of 146.2 billion rubles. Transferring part of the revenues from excise duties to regional budgets will not compensate for these losses, which will require a further increase in excise duty rates. The growth in excise duty rates will affect the end users due to the increase in transportation costs, which can contribute to the rise in food prices.

One solution could be the phasing out the motor vehicle tax while increasing the share of excise duties in the cost of petroleum products and redistributing most of the revenues in favour of the regions.

Svetlana Gulyaeva – senior researcher at the Tax System Development Department