Russia's Prime Minister Mikhail Fradkov said in late 2005 the economics and finance ministries should consider the issue of reducing value added tax (VAT) from the current 18% to 13% in an effort to boost economic growth and reduce the tax burden on business and consumers.
Sergei Shatalov, deputy finance minister said the government should seek a reduction in profit tax instead of cutting VAT.
Profit tax is more sensitive for enterprises and its reduction could have a greater effect, Shatalov said.
Shatalov said the finance ministry had studied the experience of Eastern Europe where profit tax rates frequently stay at 20% while VAT rates tend to grow.
In its comments on the Russian government's proposal to lower VAT, the World Bank said in its report in late 2005 that the value added tax was the only major source of revenue for the federal government that remained largely unaffected by oil and gas price fluctuations and plans to cut it were questionable.