On April 21, 2014, the Russian Ministry of Finance published a Draft Tax Strategy (from here on – Draft). By all means, this document is not a legislative act, but it will become a foundation for further changes in tax legislation, as well as budget planning on all levels. The good news is that the authorities are not planning to increase the tax burden on business. Moreover, they promise to continue this policy after 2017 as well.
A separate chapter of the Draft is dedicated to excise duties, and it is not a surprise as during the last several years the policy towards alcohol, tobacco and luxuries is progressively hardening.
From 2007 to 2013, the tax burden in relation to excise duties on alcohol and tobacco grew in 1.5 times (from 0.95% GDP in 2007 to 1.52% GDP in 2013).
These measures definitely promote providing income to the budget and the state's anti-alcoholism campaign, but there are factors curbing this fast growth of excise duties. Thus, in response to a rise in prices following the growth of excise duties significant part of alcohol sales may become illegal.
Moreover, MinFin experts note, it is necessary to take into account that in some countries-members of the Customs Union excise duties rates are significantly lower than in Russia. For example, in Belarus the excise duties are 80-90% of Russia’s rates, and in Kazakhstan the difference is even more significant even in light of the latest increase in rates.
Therefore, starting in 2017 the excise duty rates on alcohol will grow within the limits of official inflation rate – 4-5 % annually.
Excise duties on tobacco products also have been actively growing: from 2007 to 2013 the rates increased in 900%. MinFin intends to coordinate excise duties on tobacco within the common customs territory.
Taxation In Individual Territories
The Draft shows that national policy of intensive development of so-called advanced economic development zones (Far East, Eastern Siberia) is only gaining momentum. The Draft proposes a five-year tax holiday for the main taxes (business profit tax, corporate property tax, land tax, and mineral extraction tax, except where applies to oil and gas extraction) to new enterprises created in these territories.
There may be additional tax holidays for local and regional taxes but the final decision is left to the relevant local authorities.
Procedures for the selection of investment projects that will be offered tax holidays, as well as types and sizes of bonus breaks for social taxes are yet to be determined and prescribed in legislation.
It is important to note that the composition of territories of advanced economic development will be increased by including Krasnoyarsk region, Khakassia, Crimea, and Simferopol.
At this time, tax avoidance by large companies through the use of offshore companies is a world-wide, as well as a national problem for Russia. Active countermeasures against this process began in the fall of 2013, when the Group of Twenty, under Russia’s presidency approved The Action Plan on Tax Base Erosion and Profit Shifting. Later, a similar National Plan to fight tax fraud on disclosure of beneficiaries was created.
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