Putin's Budget Promises No Revolution In Tax Policy

by Tatiana Smolenskaya, Tax-News.com, Moscow

01 June 2006

A senior Kremlin policy advisor has indicated that President Vladimir Putin has no intention of making any dramatic moves in terms of tax policy in the forthcoming budget cycle, which will instead focus on stabilisation of the budgetary system.

Arkady Dvorkovich, head of the presidential expert department, was reported by the Russian media on Tuesday as saying that there will be "nothing revolutionary" in terms of tax policy, as President Putin calls for the government's books to be balanced in the three year budget period from 2007 to 2009.

However, Dvorkovich indicated that the government is planning to change the taxation of holding dividends "so that holdings open their headquarters in Russia rather than abroad".

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.

A comprehensive package of tax reform proposals discussed at a cabinet meeting in April is likely to be the last round of major changes to the nation's tax law for the foreseeable future. The latest set of proposed amendments seek to improve tax administration, increase social security payments, introduce a new system of value added tax refunds and encourage production in the Siberian oil fields.

During this meeting, Deputy Prime Minister Alexander Zhukov confirmed that after the amendments are written into law, the tax code will remain unchanged "for quite a long time".

Since 2002, the Putin administration has reduced or abolished a number of taxes, including turnover tax, payroll taxes, sales tax, and value added tax. The government is mulling a further reduction in VAT by 5% to 13%.

According to Putin, in 2005 Russia's tax burden eased to 27.4% of GDP from 28.7% in 2004.

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