MOSCOW (RIA Novosti political commentator Yana Yurova). The Russian authorities have started talking about easing the tax burden on business.
During a meeting with businessmen, Vladimir Putin promised to review tax control and tax assessment procedures. The president reiterated his position in his state of the nation address at the end of April, when he urged fiscal agencies not to "terrorize" business by conducting inspections over and over again.
Even before the president's harsh remarks, the Finance Ministry had admitted that the state's excessive intervention in business was putting the breaks on its development. As a result, a number of amendments to the Tax Code emerged. The VAT rate became subject of heated discussions. For now, the tax rate will remain the same at 18%, and 10% for privileged categories of goods. However, this issue will obviously return to the agenda again some time soon, as Economic Development Minister German Gref says the practice of using two tax rates must be abandoned because it creates conditions for unfair competition. It has been decided, though, to accelerate VAT rebates for capital investments so that they are issued on a monthly basis. Under the current system, a rebate is only paid out after a facility becomes operational and companies sometimes have to wait for years to receive their due payments, which leaves businessmen taking the view that such practices are a tax on investment.
In 2007, the authorities will introduce an application-based VAT rebate procedure for exporters. As early as in 2006, additional amortization premiums for investments will also be introduced. Taxpayers will be able to apply 10% of the cost of purchased equipment to the amount of incurred expenses even before the amortization of the core assets and, therefore, reduce the base taxable amount. In addition, the Finance Ministry has proposed simplifying the rules of including the cost of R&D and experimental works in expenses.
However, the most sensitive issue for Russian businessmen is that they might be taxed two, three or more times. Last year, the tax authorities were so aggressive in pursuing their additional inspections for past years that they managed to bring an additional $18.5 billion to the state budget, which is about a quarter of the country's annual tax revenues.
Businessmen and bureaucrats have now reached an agreement that the tax authorities will conduct no more than two inspections a year. An additional inspection may only be conducted to control the work conducted by a subordinate tax body. However, the business community and authorities have so far failed to identify which official body will sanction additional inspections of large companies.
Finance Minister Alexei Kudrin says the state budget might lose $8.5 billion as a result of the legislative amendments. The accelerated VAT rebates on exports in 2007 will lead to a loss of $9 billion with consideration for the amount paid in 2006. Somebody will obviously have to cover these losses and so in early April Prime Minister Mikhail Fradkov instructed the Federal Tax Service to study sources of additional state revenues.
Now that the government has ordered the tax authorities to leave the business community alone, the focus will have to shift to ordinary people, who have enjoyed a flat income tax of 13% in the last four years. The idea of returning to progressive tax rates has not been openly raised yet, but the tax authorities have already started to apply certain measures to individual taxpayers. For instance, they stopped informing citizens about property and vehicle tax, which means that you could be sleeping soundly at night without realizing that a tax evasion warrant has been issued and the fines for unpaid taxes are accumulating like an avalanche. The fine is a large one - about 20% of the base sum per quarter.
Moreover, a tax evader is automatically declared to have broken the law and loses the right to so-called social and material rebates. In essence, these are reimbursements of some of the 13% income tax when you first buy a flat exceeding $37,000 or when you spend more than $1,000 on medical treatment or education. Considering that 40 million square meters of housing were built in Russia last year, this way to save budget funds might raise an additional $2 billion.
