Actual issues of indirect taxation in the customs union (for example, excise taxes)

Author: Oksana L. Kurochkina,
Barrister

Union of Russia, Belarus and Kazakhstan in the Customs Union and the Common Economic Space, according to the creators, primarily aimed at increasing the well-being of their populations through the empowerment of trade in goods and services and increase the competitiveness of their economies. To date, these opportunities are limited number of significant barriers related both to the organization of economic activity within countries and trade barriers that arise at the boundaries between countries. Of course, progress towards further integration of the economies of member countries of the Customs Union and the Common Economic Space is to minimize and eliminate the influence of such factors and barriers.

One of these barriers to the proper functioning of the Single Economic Space, lies in the field of indirect taxation and connected with excise.

In accordance with the Agreement between the Government of the Republic of Belarus, the Government of the Republic of Kazakhstan and the Government of the Russian Federation dated January 25, 2008 “On the principles of indirect taxes on exports and imports of goods, works and services in the Customs Union” and adopted in accordance with Article 4 of the Agreement Protocol on the collection of indirect taxes and the mechanism of control over their payment for exports and imports of goods in the Customs Union of 11 December 2009 (hereinafter – the Protocol), provides that the importation of goods into the territory of one state – a member of the Customs Union with the territory another state – a member of the Customs Union by the tax authorities of the importing State charged indirect taxes (paragraph 1 of Article 2 of the Protocol). In this case, for the purposes of the Agreement under the indirect taxes understood the value added tax (VAT) and excise taxes (excise tax or excise duty).

Paragraph 11 of Article 2 of the Protocol provides that the amount of indirect taxes paid (offset) on goods imported into the territory of one state – a member of the customs union with the territory of another state – a member of the customs union shall be deductible (offset) in accordance with the legislation of the State – a member of the customs union, in which imported goods.

In Belarus, for excise tax deductions currently used only in cases where the excisable goods which have already been calculated (paid) excise taxes are used for the production of other excise goods (items 2.1 and 2.2 of Article 123 of the Tax Code of the Republic of Belarus).

According to paragraph 2 of Article 200 of the Tax Code of the Russian Federation shall be subject to deductions of the excise tax paid by a taxpayer for the import of excise goods into the territory of the Russian Federation and other territories and objects under its jurisdiction, released for free circulation, further used as a raw material for the production of excisable products.

In accordance with paragraph 2 of Article 291 of the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” to deduct include excises in the Republic of Kazakhstan, on excisable goods used as the main raw material for the production of other excisable goods.

Thus, the national legislation of the States – members of the Customs Union provide for the deduction (offset) of excise duties only in respect of excisable goods used for the production of other excisable goods, while the Protocol, for the purposes of deduction (offset) excise taxes, not set any restrictions and conditions for the further use of excisable goods.

In this regard, in Belarus and in Russia in economic entities – payers of indirect taxes, there is a need to pay excise taxes twice, without the possibility of further deduction (offset) – initially on the territory of the Republic of Belarus, and then the sale of excisable goods to the Russian Federation. In other words, the Protocol establishes the right to deduct the importer (offset) of excise duties paid on importation of excise goods, but in practice it can not be implemented because there is no such order, and national legislation make it possible to realize the right to deduct (offset) excises only respect of excisable goods used as the main raw material for the production of other excisable goods.

In fact, it leads to double taxation of business entities and creates a barrier to mutual trade, which ultimately prevents the free movement of goods within the Customs Union.

Legal nature of indirect taxes includes the taxpayer’s right to compensation for indirect tax that is partially realized prescribed in the Protocol mechanisms taxpayers confirm the validity of the application of the zero rate of VAT on the movement of goods within the Customs Union, and the excise tax, pursuant to the Agreement between the Government of the Republic of Belarus and the Government of the Republic of Kazakhstan Government of the Russian Federation dated January 25, 2008 “On the principles of indirect taxes on exports and imports of goods, works and services in the Customs Union”, also attributed to indirect taxes.

Based on the above, it is possible to predict the introduction of amendments to the Protocol on the procedure of collection of indirect taxes and the mechanism of control over their payment for exports and imports of goods in the Customs Union of 11 December 2009, in terms of fixing the order of realization of the right to deduct the importer (offset) of excise duties paid on the importation of excise goods (not used further as a raw material for the production of excisable goods) in the states – members of the Customs Union.

I believe that such action on the part of a supranational regulator, fully meet the objectives of ensuring conditions for functioning and development of the Customs Union and the Common Economic Space, as well as the implementation of international treaties that form the legal framework of the Customs Union and the Common Economic Space.

So, the word for the regulator.