Taxing times: why Russian pump prices rise as oil prices fall

Fri Jul 29, 2016 9:36am EDT
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By Maxim Nazarov and Olesya Astakhova

MOSCOW (Reuters) - The global economic slowdown has hurt millions of households, but has at least had a silver lining: with oil prices falling, the cost of filling up a vehicle with fuel has dropped.

Except, that is, in Russia.

While in the past two years world oil prices have fallen 60 percent LCOc1, the prices at the pump for gasoline in Russia - one of the world's biggest oil producers - have risen 11 percent.

A Reuters analysis of the pricing structure for Russian fuel has revealed a major reason for this anomaly: a large chunk of the savings that consumers would be making from lower world prices are instead being eaten up by the government in the form of higher taxes.

Fuel consumption is falling yet, according to Reuters calculations, the Russian state budget is on track to take in about 200 billion rubles ($3 billion) more in excise tax on fuel this year than it did last year.

That extra money is about 1.4 percent of projected budget revenues for this year, or roughly what it will cost the Kremlin to build a planned bridge connecting southern Russia to Crimea, the region it annexed from Ukraine.

In this way the Russian government, struggling with lower oil export income and Western sanctions, has been able to plug holes in the budget largely at the expense of motorists - but without the politically risky step of publicly raising taxes imposed directly on consumers, like sales tax.

The Russian finance ministry did not respond to questions submitted by Reuters.   Continued...

A truck drives past pump jacks at an oil field Buzovyazovskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia, July 11, 2015.  REUTERS/Sergei Karpukhin/File Photo