Russian Publishers May Face Retroactive Tax

by Tatiana Smolensky, Tax-News.com, Moscow

21 November 2001

If a dispute between the Russian Tax Ministry and the state-owned publisher Rossiiskaya Gazeta is not resolved, the country's entire publishing sector could soon face the imposition of retroactive VAT.

The dispute follows a voluntary audit of the publishing concern by the Tax Ministry. Under the current rules, mass media publications in which advertising makes up less than 40% of the content are exempt from VAT. However, the Ministry has demanded 3 million roubles ($101,000) in back taxes over a disagreement on the nature of shareholder meeting and company announcements run by the newspaper, which it claims are advertising, and which therefore take the paper above its quota.

Although the law is set to change next year, when all mass media companies will be obliged to pay VAT, the Rossiiskaya Gazeta case is retroactive, a factor which could have grave implications for the whole of the country's publishing industry.

Georgy Boos, the State Duma Deputy behind the draft tax bill which is currently being considered, has urged the Tax Ministry to refrain from applying the 1996 rules to this case when his bill is so near to completion. 'If the question is not solved, all newspapers may have to pay back VAT,' he warned. 'The Treasury will not earn much, but many newspapers will go bust.'

Although so far no other organisations have been targeted for VAT demands, other publishing houses have expressed concern about the precedent which could be set by the dispute. 'If that is the case, we may one day face a tax bill for all ads which use, say, the colour blue,' Pavel Selenkov, commercial director of the Kommersant publishing house, observed wryly.

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