Russia Announces Reforms To Anti-Advertising Tax Laws

Tatiana Smolenska, Tax-News.com, Moscow

18 January 2001

A meeting held last week between President Vladimir Putin of Russia and a group of prominent broadcasting and newspaper editors, in an attempt to defuse criticisms of the Government's supposedly repressive media policies, had an unexpected result when tax reforms were announced which would improve the position of advertisers.

Apart from helping President Putin to counter accusations that he is trying to impose greater state control over the media, the reform is part of the President's efforts to simplify Russia's tax code and encourage the declaration of income.

The new laws, expected within two to three weeks, will allow companies to deduct more advertising spending from taxable income. This will remove one of the biggest obstacles to the growth of the country's advertising market. Under current rules, advertising spending is tax-deductible only up to 2% of turnover, a tiny figure for consumer goods industries which routinely spend up to 20% of turnover on advertising. The present system therefore amounts to a tax of 30% or more on advertising spend.

Still, things were worse before: in the years immediately after the fall of the Soviet Union the law still regarded advertising as an expression of imperialist counter-revolutionary propaganda, subjecting it to a battery of taxes which virtually ruled out any honest book-keeping where money had been spent on promotion. The relaxation which came in the early 90s, such as it was, transformed the possibilities for Russia's nascent but almost under-cover advertising sector, leading to the great 'Snickerisation' boom of the mid-90s. Even now, though, book-keepers go to great lengths to disguise advertising costs as 'sponsorship', 'consultancy' or 'production' expenses, all of which receive more beneficial tax treatment.

The reforms, which probably will have the effect of increasing the profitability and hence the independence of Russia's media, were widely welcomed. Journalists also welcomed the reform, saying that it would tend to lessen the power of proprietors.

The meeting with President Putin hasn't helped Media-Most, however: Russian prosecutors yesterday arrested the group's chief financial officer, Anton Titov. The company said that the arrest was linked to the ongoing investigation of Vladimir Gusinsky, the group's founder, and accused the authorities of intimidation. Mr Gusinsky, who has been accused of misrepresenting his assets when borrowing $300m last year, is in Spain, fighting extradition.

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