Russia Raising Taxes on Gasoline and Cellular Network Services to Fund Development Projects in Crimea, Kaliningrad and Far East

The Russian government recently announced a hike in excise duties on ga­soline. The overall retail price will increase by more than a ruble per liter (6.5¢/gallon), or by around 2.5 percent of its current market price, by the end of the next year (Ekho Moskvy, September 18). Legally speaking, the current Tax Code aut­­ho­rizes only a 30-kopek (about 1¢) tax increase on gasoline retail sales per six-month period, compared to the announced tariff surge of 50 kopeks (Daily-finance.ru, September 18). Moreover, it was announced that Russian cellular network operators will soon need to pay more money into the so-called “Universal Service Reserve.” Today, 1.2 percent of their total revenue goes into this national reserve pool (RBC, September 18). All this was done in a desperate move to raise 165 billion rubles ($2.86 billion) badly needed for infrastructure projects in occupied Crimea as well as Kaliningrad and the Russian Far East (Vedomosti, September 18).

As the government continues to deal with constrained budgets—due to domestic economic stagnation, international sanctions and chronically low oil prices—it has clearly been trying to shift the tax burden from state corporations to the general public. But several other important conclusions can also be drawn from this move by the authorities.

First, for the first time ever, the Russian government is attempting to extract money for a par­ticular industry from its own consumers. The “gasoline money” will reportedly be used to build new modern highways in Crimea and Kaliningrad oblast. Whereas, the additional funds collected from mobile operators might finance an underwater fiber-optic cable connecting St. Petersburg to Kaliningrad (Kommersant, Znak, September 18). The overall deficit is becoming more and more visible in Russian state finances, and the government’s announcement regarding the aforementioned taxes should make it easier to explain to angry customers where their money is going. Still, the major conclusion to be drawn here is that oil revenues can no longer be expected to cover all the government’s needs. Therefore, in the coming years, the population should be prepared for further price hikes, justified as supporting the “national interest.”

Second, the two newly announced tariff hikes resemble a kind of “solidarity tax,” imposed on every citizen in order to raise money for the most sensitive and “strategic” parts of the country. Crimea, the Kaliningrad exclave and the Far Eastern part of Russia are all regions being depicted as the most “vul­nerable” to outside aggression. In fact, back in 2014, the Kremlin wanted to introduce a formal “solidarity tax” on wealthy Russians for modernizing Crimea (RT, July 22, 2014), but dropped its plans because the move was met with widespread disapproval. The government is now trying this scheme once again. But in this case, what is essentially a near-universal tax is being presented as a tax on sectoral transactions affecting only those who use specific kinds of services.

Third, the government is sending a clear signal to the public that Russians should not expect to rely anymore on underpriced goods and services on the domestic market. To­day, the gasoline price in Russia hovers around $2.70/gallon, while one can purchase a package that includes 20 hours of calls and unlimited cellular data for only $16/month (Moskva.beeline.ru, accessed October 4). Gasoline prices in Russia are 30 percent lower than in Ukraine and 60 percent lo­wer than in Finland, while cellular phone connections are the cheapest in Europe. The latest moves by the authorities, however, show that prices will be artificially “adjusted” even though there is not much grounds for them to rise under overall low domestic inflation nor taking into ac­count stagnating personal incomes.

To summarize, it seems clear that in the current difficult economic conditions, the Kremlin is deciding to squeeze additional money from Russian consumers, targeting not the wealthy but first of all ordinary citizens—although covering its intentions by claiming these will only be sector-specific taxes.

One might be surprised that these actions would be undertaken only months before the upcoming presidential elections, scheduled for March 18, 2018. But in fact, Vladimir Putin has little to fear for now. With no political forces, or even individuals, seriously competing in the upcoming elections, it actually looks better politically for the president and for his government to begin to raise taxes well before the vote to avoid being accused of misleading the public right after the campaign.

For years, analysts have insisted on a kind of “Putin consensus” in Russia that has allowed the ruling elite to deprive the people of their political rights and liberties in exchange for securing a rise in the quality of life and personal well-being (Ecfr.eu, March 1, 2012). But now, many of those same experts say this consensus has been replaced with another one, ba­sed on the people’s willingness to face hardships in return for a restoration of Russia’s imperial greatness (Russ.ru, January 19, 2015; Actualcomment.ru, April 13, 2016). However, as the new gasoline and mobile phone tax hikes strongly suggest, such a reading of the shifting “Putin consensus” may be entirely wrong. The ease with which Putin is apparently able to strip his subjects of their “natural benefits” shows that he might have never accepted his relation­ship with the Russian people as any kind of reciprocal “deal” at all. Indeed, the traditional Russian appro­ach to the serfs is based on the assumption that the ruler may express his genero­sity at some point, but he is not obligated to do so—and it is quite probable that the current Russian elite accepts this line of thinking as well, believing it is not restricted “by the consent of the governed” and can do whatever it wants without any kind of rejoinder from the population. If that assumption is right, Russia will likely continue to drift toward an ever more authoritarian regime, a trend perhaps only broken in some distant future by a typical Russian revolt.