Objections from Ministry of Finance likely to be overruled (290 words)

Published: 5/16/2001

After the Duma's first reading, on 4th April, of the new profit tax clauses of the Tax Code, the reform of the legislation, designed to lower the nominal taxation burden on enterprises, has moved into its last preparatory phase, as the Budget and Finance Committee review amendments for the second reading. The Committee has approved a startling amendment proposed by Yegor Gaidar, Russia's first liberal reformist prime minister in 1992. His recommendation would reduce the unified profit tax rate from 35%, as currently proposed, to 27% in four equal annual increments from 2003. As might be expected, the Finance Ministry has opposed this and has also reneged on previous understandings with the Duma, that the apportionment of the profit tax, taken between federal regional and sub-regional authorities, would be defined in the Tax Code, as would be the right of a regional authority to offer tax concessions from its share of the proceeds. The Ministry of Finance's stance seems to be motivated by a desire to preserve room for fiscal manoeuvre in the annual budget round. The incorporation of much of these arrangements in the statute would, however, provide a greater sense of stability and - for Russia - predictability. The ministry's objections to the inclusion of such arrangements in the statute may well come to nought, as it seems unlikely that it will gain the support of either the Duma or the Kremlin. It has already had to concede to the Duma on the preservation - for at least five years - of the full deductibility of all capex, up to half recorded profit (though this concession will now be confined to companies producing physical goods).

Article ID: 2536