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Kasyanov Hints At Further Reduction In VAT

by Tatiana Smolenska, Tax-News.com, Moscow

30 December 2003


Russian Prime Minister Mikhail Kasyanov has indicated that VAT (Value Added Tax) may be further reduced if the government implements a Finance Ministry proposal to introduce special VAT accounts for the business sector.

According to the proposals, the VAT accounts would be separate from a trader or firm’s regular business account and will require a trader to make two transactions when completing a purchase, one to the seller for their goods and services, and another payment into the seller’s VAT account which will then either be passed on to the government or paid into the account of the seller’s supplier. According to the Ministry of Finance, the new system will boost government revenues by up to 100 billion rubles per year with only minimal additional administrative costs for firms.

However, the business sector contends the new system will be more costly than the Finance Ministry is letting on and is baulking at the potential costs of its implementation. Nevertheless, presumably as a sweetener to the business lobby, Kasyanov revealed last week that he does not rule out the possibility of further reductions in VAT, which is already being reduced from 20% to 18% in January as part of the government’s wider tax reforms.

Meanwhile, highlighting the fact that minsters appear to remain at cross purposes on the issue, Deputy Economic Development and Trade Minister Arkady Dvorkovich suggested earlier this month that the special VAT accounts should be phased in alongside a reduction in VAT to 13%.


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