13.09.06

Despite plans from the Ministry of Finance for reforming the Value Added Tax (VAT), the Presidential Administration is lobbying for it to be replaced with a sales tax. Moreover, the head of the Kremlin’s panel of experts has set 2009-2011 as the concrete term for which the VAT is to be abolished. What is more, some officials are insisting on a radical reduction of the Unified Social Tax (UST) – from 26% to 13-14%. Experts believe that if it is possible to avoid falling profits with a fixed sales tax rate, a reduction in the UST will deal a deeply-felt blow to the Pension Fund.

Meanwhile, the Ministry of Finance is decidedly against the moves. Officials in Aleksei Kudrin’s department contend that budget losses would be irreplaceable. However, as early as May, the Deputy Minister of Finance said that the Ministry of Finance was planning to start a club for VAT payers. Only those companies that join this club will be able to enter claims for VAT refunds. Ministry of Finance officials are willing to resume discussion of the idea of replacing VAT with a sales tax after 2009.

The Presidential Administration plans to reform UST in an equally radical fashion.

Officials claim that UST will be gradually reduced. The proposed first step is requiring businesses to make mandatory insurance payments, while counting voluntary deductions on pension and medical insurance towards the mandatory payments. Many tax experts feel that such a reduction would make it possible to bring wages "out of the shadows," but, in doing so, will effectively eliminate this tax as part of federal budget revenue. This is related to the fact that the federal government’s portion of UST, which currently amounts to the maximum 20%, will decrease by an amount equal to the amount of insurance payments made into the Pension Fund, i.e. by 14%.

Source: from materials from the newspaper "Business"