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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