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Russia Mulls Cut In Corporate Profit Tax

by Tatiana Smolenskaya, Tax-News.com, Moscow

05 March 2007

Russia may cut its corporate profit tax rate to 20% from 24% as part of a three-year tax policy plan, Deputy Finance Minister Sergei Shatalov stated last week.

The government had previously been considering a further reduction in value added tax, currently 18%, to as low as 13%, but Shatalov said that a cut in corporate profit tax would be more likely to stimulate economic growth and boost levels of investment.

To balance revenues lost through a cut in profit tax, Shatalov said that the government would consider raising royalty taxes on natural gas extraction in tandem with a gradual liberalisation of the natural gas market, where prices are currently kept artificially low by the government.

Russia derives a substantial portion of its tax revenues from its abundant natural resources, and a cut in value added tax, the only major source of revenue not connected with oil and gas prices, would probably achieve little. However, Shatalov indicated that a cut in profit tax would depend on the ability of the government to balance its budget. President Putin has called for the government's books to be balanced in the three year budget period from 2007 to 2009, and Arkady Dvorkovich, head of the presidential expert department, was reported to have said last year that there will be "nothing revolutionary" in terms of tax policy during this budgetary cycle.

Putin has stated many times that while the government remains committed both to simplifying tax legislation and reducing the tax burden, tax reform must be balanced against needs of business, which requires certainty in the tax code.

Since 2002, the Putin administration has reduced or abolished a number of taxes, including turnover tax, payroll taxes, sales tax, and value added tax. According to Putin, in 2005 Russia's tax burden eased to 27.4% of GDP, from 28.7% in 2004.

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