Your pocket or state’s pocket” what is the difference?!

“Your pocket or state’s pocket” what is the difference?!

04.12.2013

“Your pocket or state’s pocket” what is the difference?!

One of the most discussed issues of the past few days has been the increase in gasoline prices. Ask whoever you wish, everyone will undoubtedly state their unhappiness about this. Every member of society - the poor, the middle class, the well-off, even the workers of various institutions and bodies who took part in the falsification of elections and teachers who were actively participating in the “carousel” during the elections – they all understand the negative impact of this increase.

They understand, but as much as they do, they try to square this circle of change with attempting to rationalize it as well. The strangest thing is that people think that the head of state is innocent of any responsibility and blame various power structures and ministries instead. They naively create petitions and appeal to the president for help. They exclaim that: “The president is good – it’s his circle that’s bad” and go on to blame the Tariff Council and SOCAR. While most know that the Tariff Council is a formal government structure, I will though try to explain the irrelevance of SOCAR in this regard.

First, the price of oil products have not increased. Rather, the increase is for the excise value applied to them. So, the selling price of oil products within the country was 300 AZN and, lo and behold, it is still 300 AZN. Due to the increase of the excise value VAT tax, this automatically increases, which in turn impacts the overall price.

This is a concept that is very well known to economists. They are more than aware that the excise and VAT taxes entering the accounts columns on spreadsheets are from sales paid to the budget until the very last AZN. Therefore, this issue actually has nothing to do with SOCAR. So statements that, “SOCAR will increase gasoline prices in accordancw with the Euro 3 standard” are totally baseless.

The main objective of this article is to show how the government gets in the pockets of people in order to fill the budget deficit.

We know that the structure which provides the country with gasoline and oil products is SOCAR. The national oil company produces 600,000 tons of oil for national use and then from processing this oil it gets 650,000 tons of oil products. Approximately 350,000 tons of these products are used domestially and the rest is sold abroad.

Therefore, I present to you the “Top 5” of produced and sold products...

Gasoline.

The country produces 120,000 tons of gasoline every month on average. Only 45 million AZN was paid to the budget as VAT and excise value from the gasoline total, the value of which was 80 million AZN. But considering that, after the recent rise of prices, the excise value of gasoline has risen from 300 AZN (average for A80, A92, A95) to 400 AZN. This makes for a 33% rise. That means that the aforementioned taxes will rise to 57 million AZN (80 million / 1.18 – 30 million + 30 million * 33% * 18%). Through that mechanism, transportation prices, including agricultural products to Baku, will increase.

By this the transportation prices including for the transportation prices of agricultural products to the capital will increase.

Diesel.

120,000 tons of diesel on average is sold every month. 20 million AZN are paid as excise and VAT tax from 60 million AZN, which is the value of the total sale. Excise tax for diesel is increased from 80 AZN to 185 AZN, making an increase of 131%. Projections show that in the next month, 34 million AZN will enter the budget instead of 20 million AZN from excise and VAT tax. If we consider that the main users of diesel gas are heavy machinery used by construction companies and railroad transportation, then the industries that will get hit the hardest are clear.

Jet engine fuel.

55,000 tons of this product, which is mainly consumed by AZAL, is produced on average every month and then sold for 15 million AZN. The portion of taxes is from this is 5 million AZN. The previous excise value of this product was 30 AZN and has now been increased to 150 AZN. This is a 400% increase. This means that from now on, 14 million AZN of excise and VAT tax will enter the budget from sales of jet engine fuel. Flying with AZAL is expensive anyway and now the plane tickets will increase even more. Also don’t forget that a lot of products are imported into the country via air freight.

Black oil and bitumen.

Approximately 8 million AZN of black oil is sold on average every month and 1.5 million AZN is raised from this in taxes. Previously, 11 AZN of excise tax was paid for each ton of black oil and according to the new prices, that has now become 145 AZN per ton. That is an eye-widening thirteen-fold increase or an even more ridicilous 1200% increase. Bitumen’s excise increased by 540%, from 34 AZN to 220 AZN. That means that 9 million AZN will enter the budget from black oil and 8 million AZN from bitumen. It should also be mentioned that per the old prices, taxes were just 1.5 million AZN. So this means that since the price of road construction will increase, so the road tax will increase as well.

Gas.

Azerigaz, which provides retail gas to the general population, kept their prices at the previous 42 AZN rate. In comparrison, Azenerji, who provide electric energy services to both the people and institutions, increased their prices to 82 AZN. So as you can see, we will face an increase in prices for our electric usage in the near future. At the same time, factories and plants using gas will pass on those costs to consumer users. So in a word, this will be a double blow to the purses and wallets of average citizens.

Let’s look at the results. In total, 49 million AZN of tax will enter the budget, of which 12 million is from gasoline, 14 million from diesel, 9 million from jet fuel and 14 million from black oil and bitumen. This is approximately 600 million AZN per year. When counting taxes from the sales of gas, electricity and other products increasing cumulatively we can easily say that, in order to close down the budget deficit, approximately 1 billion AZN will enter the budget. And you, ordinary people, are going to pay for this. So hold your pockets tight, because there are people who think that your pockets are their pockets.