VAT Decrease Postponed
On Wednesday, Ministry of Finance Head Sergey Shatalov suggested renewing debate for simplifying VAT collection and canceling the tax for smaller enterprises. The question of whether or not to replace VAT with a sales tax is not in discussion.
Whether or not to reduce VAT has recently become a point of contention between the Ministry of Finance and other governmental sectors. Prime Minister Michael Fradkov suggested lowering the tax to 13% in 2007. However, a Wednesday budgetary commission session failed to address the issue at all. The Ministry of Finance is likely ready to discuss reducing the tax, which is currently at 18%, after an analysis of the probably consequences of introducing such changes is completed in 2008. Some changes are already in effect. For example, starting this year, the capital investments may be deducted from VAT, and starting next year, VAT will be refundable on exports.
The Ministry of Finance is also ready to exempt smaller enterprises from VAT registration, as their counterparts in Europe already do. The Ministry of Economic Development has also proposed tax reduction: on the sale of new aviation equipment (both domestic and import). It proposes to cancel the VAT for the sale of new domestic aviation technology. The Ministry is also proposing new excise taxes on fuel, aimed at stimulating production of high-octane fuel.