USSR: Measures of Economic Growth and Development, 1950-80

Approved for Release: 2019/07/19 C05210421
that two products of equal cost may have, or for the
relative scarcity of the inputs used to produce the
product. Since demand has little or no effect on
prices, some goods will be in abundant supply while
others are rationed.
Distortions Caused by Turnover Taxes and Subsidies
The turnover tax is one of the major sources of
government income in the Soviet Union. It is effec-
tively an excise tax levied selectively on various
products, but mostly on consumer goods. It can be
characterized as a tax on consumers’ income, intended
to soak up excess purchasing power and to restrain
consumer demand. The often high incidence of the tax
and its selective application are important reasons
why Soviet prices do not fit the Western model which
requires that price equal marginal cost. Table 5 shows
selected data from the 1972 Soviet input-output table
on the level and variability of the turnover tax.
Most of the taxes are levied on consumer goods, as
indicated by the large amounts collected in the light
and food industry sectors. The fuel taxes are an
exception: most are collected on interindustrial sales
and in some cases are extremely high. In the case of
agriculture, the farms pay heavy taxes on fuel pur-
chases while receiving a subsidy on electricity
purchases.
The aggregate data in table 5 not only indicate a high
variance in tax incidence, but also hide other differ-
ences. For example, the entire turnover tax revenue
shown for machinery products arises from taxations of
consumer goods, mainly automobiles (the tax accounts
for 53 percent of consumption outlays for automobiles
in purchasers’ prices) and radioelectronics (15 per-
cent). Within the food industry, no taxes are paid on
the output of the fish, meat, dairy products, flour, and
fruit and vegetable sectors. On the other hand, the tax
amounts to 30 percent of the gross output of the sugar
industry and 56 percent of the gross output of the
“other foods” branch, which manufactures alcoholic
beverages.
Clearly, wide variations in indirect tax rates weaken
the usefulness of prices as a measure of production
potential. The suggestion has been made that Soviet
turnover taxes represent a surrogate factor charge to
compensate for the other problems in Soviet prices.
35
Table 5
Turnover Taxes as a Share of
Gross Output in Industry, 1972
Sector Turnover
Taxes
(billion
rubles)
Gross
Output
(billion
rubles)
Turnover
Taxes
as a Share of
Gross Output
(percent)
Metals 0. 1 44.2 0.2
Fuel 39.2 15.1
W T
5 .9“
gectric power 14.0 4.1 if f0.6
Machinery 4.3 117.1 3.7M___ _ A“____
Chemicals 1.1 29.6 3.7
Wood, pulp, and paper 0.2- 25.5 0.9
W
Qmstruction materials 0.; 25.0 1.4
I
Light industry l5.7_ 87.5 1s.o
T
End industry 26.2 126.2 20.8 ____
Other industry 1.0 13.4 7.6
Source: Dimitri M. Gallik, Barry L. Kostinsky, and Vladimir G.
Treml, Input-Output Structure of the Soviet Economy: 1972,
Foreign Economic Report 18, US Department of Commerce,
Bureau of the Census, Foreign Demographic Analysis Division,
Washington, D.C.; forthcoming.
This issue has been discussed in detail by Becker and
Bergson, both of whom rejected the argument.“
Subsidies also force a divergence between prices and
marginal costs. In the 1967 price reform, the prices of
natural resources such as coal, oil, gas, and ferrous
and nonferrous ores were raised sharply in order to
eliminate subsidies or to improve profit levels. Rising
extraction costs since then have made once profitable
branches unprofitable and led to renewed subsidies
and the need to raise prices once again. In the coal
industry, for example, profits have declined from 844
million rubles in 1970 to a loss of 626 million rubles in
1978."
The most expensive subsidies are now paid on agricul-
tural products. The Soviet Government has several
times raised procurement prices for various agricul-
tural products, notably meat and dairy products, in
" Becker, 1969, pp. 47-49; and Bergson, 1961, pp. 105-108.
" Narkhoz I978, p. 517.
Approved for Release: 2019/07/19 C05210421