By Justin Toland, Contributing Editor, PPI magazine, RISI
BRUSSELS, Aug. 26, 2008 - Marvin Gaye once sang, in one of his bleaker moments, “There’s only three things that’s for sure: taxes, death and trouble”. The legendary soul singer’s sentiment may have struck a chord with Finnish pulp and papermakers in recent times. Thankfully, the Finnish government has taken steps to lighten the mood by agreeing to significantly reduce the income tax on domestic raw wood material. Under proposals submitted last month, taxes on timber sales will be cut by 50% retroactively from April 1, 2008 until the end of 2009, with 25% tax relief in 2010.
The likes of Stora Enso and UPM have welcomed the move, which they hope will lead to increased availability of domestic fiber at competitive costs. The tax cut should also help offset the effects of further increases on export duties for Russian roundwood timber.
The X Factor
Like the Canadian softwood lumber dispute before it, the Russian timber duty crisis vividly illustrates how taxation policy is one of those variable costs that can make or break the profitability of a pulp and paper mill or company. And, outside oil-rich microstates such as the UAE, or tiny playgrounds of the super rich, such as Monaco, the problem of tax is becoming more, rather than less complicated, as revenue-raising powers are often increasingly devolved to regional and municipal levels. Take the case of Seattle, which has recently passed a new tax on the use of disposable bags in grocery and convenience stores, with the aim of reducing waste. Unlike in other jurisdictions, however, the 20 cent/bag tariff will apply to paper as well as plastic bags, creating a new headache for sack kraft manufacturers selling to that market.
More taxes means more need for the lobbying power of industry bodies such as CEPI and the AF&PA. Unsurprisingly, the latter has condemned the Seattle bag duty, rightly pointing out that, since the city has a very high recycling rate already, “the proposed tax is unlikely to increase recycling and instead will simply raise costs for consumers.”
Protect and survive?
At the macro level, with the Doha Development Round of world trade talks locked in stalemate, hopes for a clearer global picture on tariffs and taxes commensurate with the globalised business environment in which we operate have had to be put on hold. Russia’s dispute with the West over Georgia and its breakaway republics and the threat of global recession are likely to increase protectionist sentiment in the short-term, thereby increasing the risk of new tariffs on the raw materials essential to pulp and papermakers.
On the flip side, if the industry is smart in its lobbying, we could see more tax breaks for EU and North American producers to counteract the effects of overt and covert state aid to competitors. The news that Venezuela is planning to invest more than $800 million in a new state-owned pulp and newsprint mill with the aim of replacing imports from USA and Canada should be plenty more grist to the lobbyists mill.
RISI is the leading source of global news for the forest products industry.
Click here to learn more about our news products and services.
Click here to see all RISI's pulp and paper news products.
You need to register to post comments on the RISI Website. Registration is FREE and EASY,
click here to sign up.
