Russia Mulls Plan To Cut VAT By 5%

by Tatiana Smolenskaya, Tax-News.com, Moscow

11 October 2005

Russia's Prime Minister Mikhail Fradkov has called upon the Finance and Trade ministries to draft plans for a 5% cut in value added tax beginning in 2007 to help accelerate the pace of economic growth.

If enacted, the measure will reduce Russia's VAT rate to 13% from 18%, although the government announced in a statement on its website that the tax cut depended on must not increasing state spending as a share of gross domestic product (GDP).

The government estimates that cutting VAT by 5% will increase economic growth by 0.5% of GDP, thus helping President Valdimir Putin to meet his pledge to double GDP over a ten year period.

Since 2002, the Putin administration has reduced and abolished a number of taxes, including turnover tax, payroll taxes, sales tax, and value added tax, which was recently cut to 18% from 20%.

Last month, Deputy Finance Minister Sergei Shatalov stated that the tax cut programme is entering its concluding phase, but indicated that the tax burden on the Russian economy will continue to be reduced by the equivalent of around 1% of GDP annually for the next three years.

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