MOSCOW, April 8, (RIA Novosti) - The Russian Cabinet of Ministers is planning to cut the social security tax for employers from 36.5% down to 26 percent starting January 1, 2005, Finance Minister Alexei Kudrin said at a news briefing Thursday.

According to Kudrin, appropriate amendments to the tax legislation were approved by the Cabinet at its Thursday's session. These amendments are one of the key documents in a tax reform bill package, introduced by the Finance Ministry.

Under the effective regulations, local employers shall pay a 35.6% tax if the annual per-employee pay is under 100,000 roubles (about $3,000, on current exchange rates); a 20% tax if the yearly pay ranges from 100,000 to 300,000 roubles ($3,000 to $10,000); a 10% tax if the pay is between 300,000 and 600,000 roubles ($10,000 to $20,000); and a 2% tax if the pay is above 600,000 roubles.

Starting next year, the tax rate will be 26 percent on wages under 300,000 roubles; 10 percent, on wages between 300,000 and 600,000 roubles; and 2% on the above-R600,000 pay group.

Kudrin said the forthcoming cut on the social security tax would save companies an estimated 280 billion roubles and that that money could instead be spent on pay raise, investment, and purchase of assets. The move is also expected to make employers' wage reports more truthful, thereby attracting more money into pension, medical insurance, and other welfare funds, he said.

The Cabinet is going to submit the tax legislation amendments to the State Duma, parliament's lower house, within three days' time, the Finance Minister said.

In the next few days, the Cabinet is also going to set forth proposals on a dividend tax rise from 6 to 9 percent, Kudrin announced. According to him, the initiative was advanced at a recent enlarged Cabinet session, where Cabinet ministers and Duma MPs discussed measures to complete tax reform.

Last year, individual taxpayers paid 20 billion roubles in dividend taxes whereas legal entities, a mere 4 billion. "The imbalance is self-evident," Kudrin commented. Companies where shares are held by private individuals tend to present much of their incomes as dividends rather than wages so as to pay less to the Treasury coffers, he explained.

Health & Welfare Minister Mikhail Zurabov told reporters after today's Cabinet session that the planned cut on the social security tax would not bring the public pension benefits down, for pension fund premiums would be maintained at their current rate. Zurabov assured his audience that the government's obligations to would-be pensioners would not be diminished by the forthcoming cut.

Vice Premier Alexander Zhukov said, for his part, that the Cabinet was planning changes in the public pension system to increase pension amounts both for current and would-be pensioners. He added that for different pensioner groups, different methods of raising pensions would be used.

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