Russian Minister Repeats Call For Cut In VAT

by Tatiana Smolenska, Tax-News.com, Moscow

23 January 2004

Russia’s Economic Development and Trade Minister, German Gref has repeated his call for a further cut in the rate of VAT to 13% to compensate for the increased costs businesses will experience if the proposed new special VAT accounts are introduced.

Speaking to reporters after participating in the introductory round table discussions with a number of Russia’s largest domestic and foreign retailers, Gref commented: "If the 'VAT accounts' system were accompanied by a significant VAT cut, then such a system could be established."

The minister pledged that he will continue to oppose the idea of the new business VAT accounts if an accompanying cut in tax isn’t forthcoming, arguing that large and mid-sized retailers would be forced to pay a large lump sum in advance.

"Our main mission is the development of the economy, and we will reject any measures threatening the well-being of companies," Gref remarked, arguing that: "If all the risks were eliminated by cutting the VAT rate, then there wouldn't be any negative movement in prices."

Gref’s Economic and Trade Ministry has been visibly at odds with the Finance Ministry over the VAT account proposal, with the latter very much in support of the move, on the basis that it would make the system more transparent and less prone to abuse. Nevertheless, Gref counters that the new system would "seriously burden companies from the point of view of paralyzing working capital."

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