Putin Rules Out Further Tax Cuts

by Tatiana Smolenskaya, Tax-News.com, Moscow

27 September 2002

'The party's over' said Russian President Vladimir Putin yesterday, addressing a Kremlin conference in a speech broadcast live on TV, saying that the government had reached its limit in terms of delivering tax cuts, although Alexei Kudrin, Finance Minister, just last week said that over the next three years the unified social tax would be cut from 36.5% to 30% and value-added tax from 20% to 16 or 17%.

Putin admitted that previous tax cuts had actually raised budget revenues, but said that this effect could not go on forever. "Reducing taxes is the easiest thing to do, but that does not mean it will always lead to the required result, because we also need to solve other problems, like those of a social nature," he told the meeting of junior entrepreneurs.

Meanwhile, the budget for 2003 received its first reading in the Duma, with expenditure estimated at US$72bn, leaving a surplus of 0.6% of GDP during what will be a peak year for debt repayments.

The government says that inflation will be on target this year at 10-12%, and GDP will grow 3.5-4.5% next year. Prime Minister Mikhail Kasyanov said on television that real incomes will rise at 7% this year, faster than originally forecast.

Steve Henderson, tax partner at Deloitte & Touche, told the Moscow Times that he was not alarmed by Putin's freeze on new tax cuts. "It is not necessarily a bad thing," he said. "If they maintain the current level of taxation [13% personal and 24% corporate] that is positive, and Putin can continue to create a favorable environment [for tax-paying corporations] without cutting the actual percentages."

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