Kasyanov Announces Tax Cuts For 2004

by Tatiana Smolenskaya, Tax-News.com, Moscow

14 April 2003

The Russian Prime Minister, Mikhail Kasyanov, last week confirmed that the government intends to cut taxes in the next fiscal year in order to shave 2% off the nation's overall tax burden as a proportion of GDP.

As yet, it is unclear specifically which taxes will be reduced, and Kasyanov has not revealed exactly how the government intends to lower the tax burden. The only indication the Prime Minister has given on government plans so far is that it intends to cut down on expenditure to make room for the reductions in taxation. However, Kasyanov has intimated that the manufacturing sector will likely be the greatest beneficiary of the programme.

Nevertheless, it seems clear from reports that reductions in spending will not go nearly far enough to meet Kasyanov's ambitious target. Finance Minister Alexei Kudrin, who is in charge of optimizing budget expenditure, has said government outgoings will only be reduced by 28.5 billion roubles ($900 million). This will inevitably mean potentially large cuts in taxes; cabinet discussions earlier this year centred on cuts in VAT and local sales taxes.

Whilst the government has received relatively high levels of income from oil exports, this money is either sitting in the Central Bank as a result of currency sales on oil, or locked away in a so-called "second budget" reserve fund set up to hold extra revenue from high oil prices.

Some economists however are not convinced the time is right for such drastic cuts in spending and tax, and would prefer to see the government run a budget surplus for a few more years before pulling in the reins.

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