Duma Approves Tax Cuts

by Tatiana Smolenska, Tax-News.com, Moscow

24 June 2003

Russia's tax cut package scheduled to be phased in over the next three years took another step closer to fruition last weekend when deputies approved both the elimination of the 5% temporary sales tax and a reduction in VAT to 18%.

It is hoped that as well as modernising the tax system along more western lines the result of the fiscal stimulus package will be to double GDP in ten years. Meanwhile, at a recent press conference, the Russian President, Vladimir Putin publicly supported the tax cuts observing: "In normal economies there is either VAT or a sales tax. The only exception is Canada, but even there the sales tax is, in substance, a modified VAT. ...We are making our economy more civilized."

However, whilst the tax cuts will no doubt benefit business and the individual alike, the loss of revenue to the federal and regional governments will be partially offset by a levy on mineral extraction in the gas industry, albeit at a lower rate than was originally envisaged. This will mean producers paying 107 rouble ($3.52) tax per 1,000 cubic metres, down from 193 roubles proposed in the first reading of the bill.

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