19.10.08

Russia’s Ministry of Economic Development and it's Ministry of Finance promise to develop a package of measures before the end of 2008 to compensate companies that will affected by the replacement of Unified Social Tax (UST) with payment of insurance premiums. The change will raise the effective financial burden on business from 26 to 34 percent of wages.

Under existing rates, companies should pay about 3.4 trillion rubles to the budget in 2010. The change will result in additional payments of one trillion rubles. Elvira Nabiullina, Minister of Economic Development, explained that compensational measures are designed, first of all, to protect labor-heavy economic sectors and small and medium sized business. Therefore, the ministry is suggesting that businesses be compensated with investment benefits and cutting profit tax by about half. Profit tax revenue in 2007 amounted to 2.2 Trillion RUR, so cutting this tax by half would approximately make up the one trillion increase. Another option is to introduce investment benefits that will allow companies to cut their tax base by half. However, both of these options are highly improbable.

Commercial loans are now very expensive, and so companies are not investing in the modernization of their production lines, - so the investment allowance is likely to only be effective for large resource-extraction enterprises. Theoretically, line item changes of tax policy could lower business’ tax load. For example, in amendments to Budget Strategy-2023, the Ministry of Finance calculated that changes introduced in 2008 will allow businesses to save 350 Billion RUR already in 2009. However, this amount is only about a third of losses due to increased social duties. Besides, a third of this saving is already located in the oil industry sector (due to an increase in the tax-free limit for subsoil extraction tax from $9 to $15 per barrel).

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Source: “Gazeta”