Fixed Payments

under socialism, the method by which the profits of a state enterprise that do not depend on or arise from the activity of the enterprise are incorporated into the state budget. Fixed (rent) payments form one of the primary types of payment from profits; through them, net revenue from particularly favorable natural conditions, transportation facilities, or economic and technical factors is paid into the budget.

In the extractive industries, such factors as the location of minerals, the depth of occurrence, the thickness of the bed, and the metal content in the ore significantly affect production costs and profitability. Therefore, geological factors may give rise to the income that does not arise from the activity of the enterprise, providing the extracted raw material is sold at the prevailing wholesale price. Rent payments having the nature of differential net revenue (seeDIFFERENTIAL RENT) are established for enterprises in the extractive industries (petroleum, gas, iron ore, chromite ore, asbestos).

In manufacturing and refining, costs and profitability depend to a great extent on such technological and economic factors as the type of production process, the scale of production, the level of mechanization, the types of raw materials, and the cost of production assets. In these branches of industry, stable fixed (rent) payments are established for enterprises whose profitability exceeds the average for the branch owing to factors that are beyond the enterprises’ control. In all branches of production, profitability is affected by the distances over which raw materials and finished goods must be shipped.

Fixed (rent) payments were introduced in the USSR in the course of economic reforms on the basis of the decree of Oct. 4, 1965, of the Central Committee of the CPSU and the Council of Ministers of the USSR entitled “On Improving Planning and Strengthening the Economic Stimulation of Industrial Production.” In 1975, fixed (rent) payments constituted approximately 4 percent of industry’s total profits and approximately 7 percent of the payment from profits into the budget. Approximately two-thirds of all fixed (rent) payments come from the extractive branches of industry. The bulk is paid by petroleum enterprises (more than 40 percent), enterprises of light industry (more than 25 percent), and enterprises of the gas industry (approximately 20 percent).

Fixed (rent) payments perform three interrelated functions: they help to distribute profits between enterprises (sectors) and the state budget; they serve to equalize the profitability of enterprises producing the same types of products; and they give enterprises an incentive to make the fullest possible use of internal resources.

The fixed (rent) payments of enterprises in the extractive industries are usually made on the basis of physical output, that is, so much per ton of crude oil or ore or per 1,000 cu m of natural gas. In manufacturing and processing, the payments are calculated as a percentage of either sales (in wholesale prices) or total profit. The size of fixed (rent) payments is such that the profitability of a given enterprise will be no lower than the average for that sector. It is fixed (usually for a period of several years) by the State Committee on Prices and the Ministry of Finance of the USSR in consultation with the appropriate ministries.

Fixed (rent) payments are also used in certain other socialist countries. They are referred to as fixed payments in the Mongolian People’s Republic, as production taxes in the Hungarian People’s Republic, and as budget differentials in the Polish People’s Republic.

In most capitalist countries, part of the capitalist profit is paid directly to the government in the form of royalties.