Russian Log Export Tax

25 April 2012

One of the conditions of Russia’s accession into the World Trade Organisation (WTO) is that it is to reduce it’s export tax on logs.  The export tax was originally introduced to encouraging greater processing of logs within Russia.  Although the tax was ultimately planned to rise to around 100%, it has risen only as far as 25% and over the last two years there has been great uncertainty about  whether it would increase as planned or whether it would have to be discontinued if Russia was determined to join the WTO.

It now seems that changes to the log export tax will be effected in August this year when the Russian is expected to formally ratify the terms for its accession to the WTO.

Russian Log Export Tax

One of the conditions of Russia’s accession into the World Trade Organisation (WTO) is that it is to reduce it’s export tax on logs.  The export tax was originally introduced to encouraging greater processing of logs within Russia.  Although the tax was ultimately planned to rise to around 100%, it has risen only as far as 25% and over the last two years there has been great uncertainty about  whether it would increase as planned or whether it would have to be discontinued if Russia was determined to join the WTO.

It now seems that changes to the log export tax will be effected in August this year when the Russian is expected to formally ratify the terms for its accession to the WTO.

The new regime is to involve a reduction in the log export tax in combination with log export quotas.  Under this, reduced taxes will apply on log export volumes up to a predetermined and once the level is exceed to tax will revert to the full 25%.  Further, there will be an EU quota and a non-EU quota.

According to various sources including Russ Taylor, President of Wood Markets in Vancouver, the tax reductions and quota levels will be;

 

 

Red Pine

Spruce

Larch

Total

Total quota vol (million M3)

16.0

6.2

0

22.2

EU share of quota

3.6

5.9

0

9.5

(the EU allotment represents a volume about 50% above recent levels)

Non EU share of quota

12.4

0.3

0

12.7

Estimated current level of trade

6.44

3.55

3.57

13.56

Level of trade within quota

12.4 @ 15%

0.3 @ 13%

Unlimited @ 15%

 

Level of trade outside quota

>12.4 @ 25%

>0.3 @ 25%

n/a

 

 

 

 

 

 

The greatest benefit for importers will be on the export of larch (no quota limit) and Red Pine (quota allotted well above recent trade levels) while spruce logs into non EU markets will largely continue to be taxed at the full 25% as the quota volume for the reduced tax will be well below recent trade levels.

It remains to be seen whether the changes will result in log buyers, especially in China, will shift back to Russian sources as a result of the tax reductions.  China’s purchasing patterns have shifted to sources such as New Zealand, Canada and the US since 2008.  Will a 10 to 12% tax reduction be sufficient to entice trade back to Russia?