Moscow Set To Increase Property Taxes As Deficit Looms

by Tatiana Smolenska, Tax-News.com, Moscow

27 February 2003

Mayor Yuri Luzhkov has said increased taxation and cuts in spending are on the menu for Moscow as the city faces its first budget deficit for five years, The Moscow Times reported yesterday. The city needs to borrow 19.9 billion rubles ($629.1 million) to help plug an increasing hole in its finances; the budget for the coming year estimates spending at 314.9 billion rubles ($9.9 billion) against tax income of 293.2 billion rubles ($9.3 billion).

Luzhkov blames this situation mainly on legislation introduced last year that stipulates 68% of Moscow's tax revenue should be apportioned to the federal government, with the city being left only the remaining 32%. Previously, the tax revenue had been split 50/50 between city and state.

Apparently, in the weekly city hall meeting Luzhkov asserted "we have to take quantitative measures to economise the budget". Many believe that the city authorities have already begun to do this by raising tax on property for companies and individuals at the upper end of the income scale.

The city retains control of much of the rented sector as well as being able to set property taxes, and appears to be using these measures to boost its coffers in the light of the projected budget deficit. The Moscow Times report claims that some estimate the cost of commercial property has risen five-fold since the start of the year. This is having a severely detrimental impact on small firms, causing many businesses to go under. It is also suggested this will act as a disincentive to future investors, who could end up paying higher rents and taxes after making improvements to their properties.

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