Russian duties complicate rail-car rental

  • 2004-07-22
  • From wire reports
TALLINN - New Russian regulations and taxes are complicating the transit business for Estonian companies and frustrating company managers.

The eastern neighbor recently decided to levy a 10 percent import duty plus 18 percent VAT on railway tank-cars rented from foreign firms if they were used for domestic shipment.
Over the past years, several Estonian companies have acquired a fleet of nearly 10,000 tank cars - with the help of Hansa Leasing - for rental to Russian operators, according to the Russian-language Vedomosti business newspaper. The value of the fleet amounts to some $300 million.
As stipulated in the new law, the customs duty would require extra investments in the amount of an estimated $90 million from owners.
However, Oleg Ossinovski, head of the rail-car rental company Spacecom, said the new regulations did not cause any problems for his company as it is the Russian partner who faces the extra liability. Since the duty applies only to shipments within the territory of Russia, the Russian partner will simply not use Estonian cars for such operations, he explained.
Aarne Saarevali of Hansa Leasing said that for the temporary import of rail cars the new customs duty could be broken up over a period of 36 months, increasing incrementally each month.
A refund on taxes paid is also possible, she said.
Unofficially, some market participants admitted that the new Russian regulations were making the rail-car rental business more complex and less profitable.
If a car is used for shipping oil from Russia to Estonia only, the duty requirement requires the car to stand idle for half the time. If the duty is paid on a monthly basis, the profit that a car earns for its owner will drop from the present $12 - $20 per day to $8 per day.
Customs duties will be refunded only if the rental agreement is terminated, yet the service life of a rail car is approximately 30 years, the newspaper added.