Aluminum tycoon Oleg Deripaska, who controls Russian Aluminum, the country's largest and the world's second largest producer, threatened Wednesday to sue the government if tolling is revoked.
"If Mr. Deripaska doesn't mind spending the money on a lawyer, he can take anyone he wants to court just like any other Russian citizen," a member of the commission on foreign trade protection measures replied.
The commission headed by Finance Minister Alexei Kudrin needs only a government ruling to implement its proposal to strike tolling from the books, since it does not require an amendment to the tax code. A draft ruling is expected by the end of this month and if approved, tolling schemes will cease to exist as of Jan. 1, 2004.
Tolling was introduced in the early 1990s as a provisional measure to help aluminum smelters with no working capital purchase raw materials.
A foreign company gives its own alumina, the raw material used to produce aluminum, to a Russian smelter and takes back the finished product.
Under legislation, tolling is the export of services, not products, and the exported products are exempt from value-added tax. In other words, aluminum producers pay in aluminum for alumina imports.
RusAl will lose $400 million a year if tolling is revoked, and it may be forced to shut down smelters in the Samara and Rostov regions, general director Alexander Bulygin told Interfax.
The government, meanwhile, calculates that the budget loses $115 million in foregone taxes to aluminum tolling.
Clothing manufacturing, chemicals and other light industries benefit from similar schemes.
Deripaska said Wednesday he would sue the government on the grounds of discrimination if tolling were abolished only for metals.
More likely, though, oligarchs with vested interests in the industry will try first to change the government's mind.
"Since a resolution hasn't been made yet, we still have time to take our argument to the right civil servants," a RusAl representative said.
Last December, RusAl lobbyists successfully suppressed a State Duma budget committee initiative to amend the tax code and make tolling illegal.
RusAl produces 80 percent of its aluminum through tolling mechanisms, and without the scheme, "We won't be able to attract the $1 billion needed to buy 3.5 million tons of alumina," Bulygin said.
Having not paid taxes on the bulk of its production, RusAl and No. 2 SUAL producer are worried about the tax burden they will face without tolling.
"With tolling, taxes are only paid from commissions for processing, while most of the profit remains outside of Russia," said Troika Dialog analyst Vasily Nikolayev. "Without tolling, taxes will have to be paid off the profit."
"The reality is we're helping the aluminum industry," said the Economic Development and Trade Ministry's Andrei Kushnirenko, a member of the commission.
RusAl and SUAL had lobbied the government to do away with 5 percent export tariffs on aluminum, to help them compete on world markets, and import quotas an raw alumina, Kushnirenko said.
"We decided to tackle the problem as a whole and having done away with tariffs, we decided to do away with tolling."
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