A combination of antimonopoly policy, tariff regulation and tax incentives helps solving issues of domestic market development

The statement was made by Deputy Head of FAS Anatoly Golomolzin on 21 March 2016 at the tax forum on “Fiscal burden upon Russian economy: tax and non-tax elements” organized by the Russian Union of Industrialists and Entrepreneurs.

Commenting the results of a survey on the factors affecting fiscal burden upon business that was carried out prior to the session, the speaker pointed out: “It would not be correct to consider expenses for the services of natural monopolies as fiscal burden. The matter is how performance and development of natural monopolies regulated by the state encourage a sustainable economic growth. It also indirectly affects the taxation system and tax proceedings to the budget. At the same time taxes not only are of fiscal importance but also have a significant regulatory impact upon performance of companies, industries and the national economy in general”.

In summer 2015 tax regulation function was assigned to FAS. The 2016 tariff campaign was conducted within the statutory period. Not only representatives of the authorities – members of FAS Board but also Consumer Councils were involved in decision-making. It is one of the milestone policy changes when consumer significance is restored to ensure the balance of interests and consumer representation in tariff decision-making, including control over investment programmes and current costs, is formalized institutionally. Under declining or low economic growth rate the tariff decisions mostly conformed to the “inflation-” principle.

Anatoly Golomolzin said that to increase operational, investment and financial-and economic activities, the tariff policy is guided by long-term tariffs (a 5 – 7 years horizon and longer), while the regulator is turning away from the “expenses+” method. The “comparable markets” method is increasingly used to evaluate whether tariffs and expenses of regulated organizations are justified. In particular, large-scale rebalancing of heating- and energy-supplying tariffs is expected. Market analysis becomes the key step in decision-making. The tariff policy is linked to reforms of natural monopolies. Where conditions for competition are formed – the issues of tariff deregulation is discussed; where there are preconditions for competition – flexible tariff schemes are applied.

“Price indices established through open competitive bidding and exchanges become the benchmark in tariff approvals. At the same time, prices formed upon the results of organized trading turn into market price indices and are used to calculate the tax base.  Market pricing is significant for state monetary-and-credit policy of the Russian Federation. The fact that the main controllers and regulators of financial and goods markets (FAS, the Bank of Russia and the Federal Tax Service) share the understanding of the principals of market price establishing and levels is of essential importance. Joint efforts of these authorized bodies are carried out, in particular, within the Exchange Committee, under the frame of which exchange trading is expanding on various markets such as petrochemicals and oil products, natural gas, liquefied hydrocarbon gases, etc.  The efforts to launch exchange trading with oil export contracts to form one of the global benchmarking for oil prices is a principal significance for establishing one of the world financial centres in Russia”, emphasized the speaker.

According to Anatoly Golomolzin, establishing exchange trading with petrochemicals in the Russian Federation (around 500 billion RUB turnover per year and supplying petrochemicals for 15 – 17% of domestic market volume), control over quadrilateral agreements with oil companies involving FAS, Rostekhnadzor and Rostekhregulirovanie, as well as tax policy (in the part of differentiated excises, flexible and differentiated mechanism of duties and tax on natural resources production) allowed for modernization of national oil refining, transition to high-quality 5-grade environmental fuel, exploring new fields. It was done without additional excessive price pressure upon consumers and enabled to considerably enhance the level of transportation accessibility in Russia. He emphasized that “it is necessary to move towards a gradual decrease of tax burden and flexible, stimulating taxes and other mandatory payments”.

Anatoly Golomolzin also pointed out that in recent years the issues of connecting to gas networks have aggravated. At the moment connection is very expensive (hundreds of thousands and more RUB) and takes long time (over a year and longer). On the basis of joint efforts with the interested departments and organizations and taking into account the successful experience of the Tyumen region, proposals are drafted on radically changing the situation. The federal law on the rules for non-discriminatory access to gas distribution network should be corrected, including technological connection and simplifying the requirements of controlling bodies. A decision is made to add sections of gas markets to the regional competition development standards. They include devising regional programmes of efficient gasification and municipal efficiency passports, regional tariff  bodies adopting special mark-ups to tariffs, regional legislative and executive bodies making decisions on tax benefits and subsidies to socially unprotected consumer groups, etc.

Anatoly Golomolzin summed up the results of the work: “a combination of antimonopoly policy, tariff regulation and tax incentives helps solving issues of domestic market development. These issues take priority in the national economic policy”.