Impact of Russia's plans to increase export tax on logs mars 28, 2007
The Russian Government announced its decision on February 5, 2007 to increase the export tax on forest products as a new measure under the Russian Forest Law, which has been enforced since December 23, 2006. The standard export tax rate and the minimum required export tax amount for forest products are shown in Table 1. When the calculated tax amount based on the percentage is below the minimum required tax, the higher amount will be collected. This is meant to counteract the practice of underreporting prices in order to avoid taxes.
Table 1 - Export Tax on Russian Wood
Items
Rate
Jul. 1 2007
Apr. 1 2008
Jan.1 2009
Min. Amount
Softwood logs
%
20
25
80
Euro/m3
10
15
50
Hardwood logs
%
20
20
40
Euro/m3
24
24
50
Poplar
%
10
10
80
Euro/m3
5
5
50
Semi finished products with bark thickness 15cm or less
%
10
15
50
Euro/m3
20
25
80
The current export tax rate for softwood logs is 6.5 percent and the minimum export tax amount is 4 euro/m3. However, beginning on July 1, 2007 the tax rate will be 20 percent and the minimum export tax will be 10 euro/m3; then on April 1, 2008 these rates will go up to 25 percent and 15 euro/m3 and on January 1, 2009 they will go up again to 80 percent and 50 euro/m3.
For temperate hardwood logs such as oak, beech and as, the tax rate and minimum tax will be higher. The rates for these products will be 20 percent and 24 euro/m3 from July 1, 2007, 40 percent and 50 euro/m3 from January 1, 2009.
For Poplar and semi finished products such as “genban” the rates will also be higher. The tax for these products will be 80 percent or 50 euro/m3, and 50 percent or 80 euro/m3 respectively after January 1, 2009.
Impact on Japan
Japan imported almost 5 million cubic meters of logs from Russia in 2006 (Tab. 2). Use of Russian wood by the Japanese plywood and lumber industry will be impractical if Russia actually implements the new tax rate as announced. The Japanese plywood industry currently uses 90 percent of Russian larch imports to Japan. Although the percentage of Japanese species used in plywood increased up to one million cubic meters last year, the majority is still Russian. Possible reactions that might be taken in Japan are as follows:
- The plywood sector may increase the ratio of Japanese domestic species used.
- The plywood sector may seek other log imports such as radiata pine or douglas fir.
- Japanese may invest in the Russian lumber industry directly.
- The Japanese building industry may find a replacement for larch plywood such as OSB, MDF, particleboard and other structural panel products.
Table 2 - Japanese Log Imports from Russia (Unit: 1,000 m3)
HS code
Log
2004
2005
2006
06/05 %change
440320100
Pinus spp. (pine)
1,766
1,233
1,340
8.76
440320300
genus Abies and genus Picea (fir and spruce)
866
679
520
-23.47
440320400
genus Larix (larch)
3,036
2,629
3,005
14.32
Softwood Log Total
5,672
4,540
4,868
7.22
440399390
Wood in the rough, n.e.s.
172
111
63
-34.29
440391000
Wood in the rough, of oak (Quercus spp)
39
38
34
-42.72
Hardwood Log Total
211
149
97
-9.75
Source: Japan Customs (WTA) Total includes other countries.
This increased export tax will probably also affect other Russian log importing countries such as China and Finland. Russia exported $2.9 billion of logs in 2005 and 46 percent went to China, 22 percent to Finland, and 13 percent to Japan. A total of 81 percent of Russian logs went to these three countries.
Finland and China were the second and third ranked countries in terms of glulam exports to Japan last year (Table. 3). Since the material for Chinese glulam is mostly Russian species such as larch for posts and red pine for beams, China may shift the inputs for glulam from Russian to others materials such as Canadian and Alaskan species. Since those log price are higher than Russia’s, it is expected that the price of these products will increase. Austria and Finland primarily produce beams for Japan using European red pine so the effect of the Russian tax increase on Finnish products should be minimal.
Table 3 - Japan Glulam Imports 2006
Country
Volume 1,000m3
06/05
%change
Price Yen/m3
Austria
246
109.2
47,523
Finland
195
141.0
51,017
China
170
112.0
49,443
Sweden
60
95.1
50,422
Estonia
48
904.8
51,352
Russia
35
121.0
44,479
Total
806
120.0
46,193
Source: Ministry of Finance, Total includes other countries.
