Capital Charge

Capital Charge

 

in the USSR, a form of distribution of profit between khozraschet (profit-and-loss accounting) enterprises and the state. The capital charge depends upon the amount of the enterprise’s or association’s productive capital. Since 1966 it has been used in the sphere of material production at industrial and other khozraschet enterprises and associations that have been converted to the new system of planning and economic incentive in accordance with the decree of the Central Committee of the CPSU and the Council of Ministers of the USSR of Oct. 4, 1965, On Improving Planning and Increasing Economic Incentives in Industrial Production.

The capital charge is the primary element in the distribution of profit and payments to the budget. It is intended to contribute to the rational use of productive capital and to increase the economic interest of enterprises and associations in the rate of return on fixed capital and the effectiveness of capital investments. At the same time, it ensures the regular receipt of funds by the budget, regardless of the fulfillment of the planned goals for profit. In 1975, the capital charge in industry was 20 percent of the profit earned.

The amount of the capital charge is determined by rate schedules (norms) and by the volume of productive capital in use. Uniform rates are set for an extended period for fixed productive capital and planned working capital. The usual rate in industry is 6 percent, but in individual sectors with relatively low profit levels, it is 3 percent. Industrial enterprises, which at a rate of 3 percent would have insufficient profit for forming economic incentive funds, are exempt from payment, as are enterprises that are permitted by plan to operate at a loss. In certain branches of industry, for example, the tea-packing and tobacco industries, the charge has been raised to 10 percent. For sovkhozes that have been fully converted to the khozraschet system and that show a profitability (in relation to prime cost) of at least 25 percent, the capital charge has been set at 1 percent of the value of the fixed productive agricultural capital. For construction and installation organizations, the capital charge is fixed at 6 percent.

The capital charge is collected at the initial value, without subtracting for wear, of the fixed productive capital. This practice increases the interest of enterprises and associations in the prompt renewal of capital assets and in the improvement of production technology. An exception is the petroleum-extracting industry. Owing to the special features of this sector, the capital charge is based on the residual value of the fixed productive capital, at a rate of 11 percent.

There are certain exemptions from payment of the capital charge. The payment is not collected for a period of two years for fixed productive capital created from the production development fund. For capital created by means of a bank loan, it is not collected for the unpaid part of the loan while the loan is being repaid. During the period designated for starting up and for reaching full capacity, new enterprises, shops, and large production units do not pay for capital funds. There is no capital charge in the case of installations for purifying water and air of harmful industrial wastes, installations and equipment that improve labor protection and industrial hygiene, and plantings of greenery that are considered as part of the fixed productive capital of an enterprise.

R. D. VINOKUR

References in classic literature ?
And if he shrinks, let him reflect that thus Confessing he shall 'scape the capital charge; For the worst penalty that shall befall him Is banishment--unscathed he shall depart.
Barclay, might find herself in the dock upon a capital charge unless the matter were cleared up.
Under a phased approach, the rental rates in the lease will finally result in the airline paying full tariff maintenance and operations charges by 2014 and LAWA will also be able to implement a unified capital charge methodology.
To avoid a reduction in the overall level of capital the Basel Committee has imposed a new capital charge for operational risk that is calibrated to offset, on average, the reduction in the capital charge for credit risk.
Treating the hybrids as equity rather than as debt significantly can increase the risk-based capital charge for companies.
Residual income was defined as net operating profit after taxes (NOPAT) minus a "capital charge" based on the capital assigned to the unit multiplied by GE's weighted average cost of capital.
* assessing a risk-based capital charge to reflect the risks in securitizations with early amortization provisions that are backed by revolving retail exposures.
From the perspective of a social planner who cares not just about bank defaults per se, but also about the efficiency of bank lending, it is more desirable to have a family of risk curves, with the capital charge for any given degree of credit-risk exposure being reduced when economy-wide bank capital is scarce relative to lending opportunities (as in, for example, a recession).
Henderson, (1) the Court of Appeals for the Armed Forces held that a special court-martial lacked jurisdiction over a capital charge of willfully hazarding a vessel and the lesser-included charge of negligently hazarding a vessel.
The capital charge rate employed is also often referred to as a hurdle rate.
Within each business line, the capital charge is a factor of the assigned indicator and the capital factor assigned to that business line.
The capital charge is the payment that must be made in order to gain access to the capital with which net assets are bought, and which in turn are used to generate a trading profit or loss (see driver four, figure 1).

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