Vadim Visloguzov
The Russian government will cut the profit tax from 24% to 20% in 2009, saving companies around 400 billion roubles, as part of the anti-crisis package of proposals, Prime Minister Vladimir Putin said at a meeting of the United Russia party.
In addition, businesses will save another 100 billion roubles due to the increased profit tax amortization premium. First Deputy Prime Minister Igor Shuvalov said the changes would compensate businesses for more than half of the rise in social payments planned for 2010.
And, more to the point, the profit tax breaks will only help if companies post profits in 2009.
The main news of Mr Putin's tax cut presentation at the party congress was the planned reduction of profit tax rate from 24% to 20% beginning as early as next year. He explained that the cut will affect the federal portion of the tax.
The tax rate is currently split into two unequal portions, 6.5% going to the federal budget and 17.5% to regional budgets. Starting January 1, 2009, the first rate will be slashed to 2.5%.
Profit tax is currently the third most important source of the federal government's income. It accounted for 18% of total federal revenues from taxes (of the first half of the year 2008), after the mineral tax (36%) and the VAT (31%).
Deputy Prime Minister and Finance Minister Alexei Kudrin has spoken out in favour of the major cuts: "It is our anti-cyclical policy. When global market trends are bad, we need to support our non-financial sectors, so I think cutting taxes is a wise and timely decision."
Mr Kudrin also admitted that the federal budget was unlikely to close with a surplus in 2009, but was more likely to run up about a 1% deficit. Although the Finance Ministry earlier proposed cutting the profit tax rather than the VAT, it assumed a clear-cut position as the global financial crisis begun - there are no reserves to reduce the fiscal burden.
However, the ministry will have to put up with the profit tax cut plan, as well as with other the anti-crisis initiatives mostly proposed by the Economic Development Ministry.
The Prime Minister has instructed the State Duma to change the profit tax rate, and also the calculation scheme. Major businesses currently make advance profit tax payments, calculated from the profit gained in the previous quarter. This means that, if a company posts a loss, say, in October, it will have to pay profit tax anyway.
Mr Putin proposed an amendment to the country's Tax Code that would relieve companies from the need to pay tax on virtual profits. "This means companies won't have to lend to the state at zero interest," he explained.
While taking care of large corporations, the Prime Minister has not forgotten about helping small businesses and individuals. Users of a simplified tax system, who pay a unified 15% tax on the difference between earnings and costs, will have their burden lightened in 2009.
Mr Putin proposed authorising the regions responsible for such users of a simplified tax system to cut the rate all the way back to 5%.
As for individuals so far deprived of "anti-crisis gifts" from the government, Mr Putin promised to double the one-time income tax discount a person can receive back from the budget when buying housing. The taxable income deduction related to buying property will be raised from 1 million roubles to 2 million, thereby entitling Russians to a 260,000 rouble recoupment from the government (up from the current 130,000 roubles).
The State Duma, the Russian parliament's lower house, which was never sluggish in fulfilling the instructions of the President or Prime Minister to begin with, was extremely quick to vote this time. Once the proposals were announced, the lawmakers promptly stuffed them into a roughly relevant United Russia-initiated bill that they had in the pipeline, as amendments.
These amendments were approved by the House Budget Committee Thursday night, to be passed in the second and third readings Friday, speaker Boris Gryzlov said.
"These proposals do not cover everything. We will monitor the developments and then come back to tax system optimization in April," the Prime Minister said.
Mr Shuvalov added that the government would probably consider a VAT cut in April 2009. He said that Mr Putin's proposals would certainly compensate for a large portion of the growing tax burden on companies generated by a sharp rise in social payments planned for 2010.
He said the profit tax rate cut will induce a 400 billion rouble shortfall in state revenues, the SME tax cut 13 billion roubles, trebled amortization premium 100 billion roubles, and doubled property deduction for individuals around 44 billion. All of the above will add up to 556 billion roubles, or 1.1% of the GDP, in 2009.
On the other hand, he said that replacing the unified social tax with social insurance payments would increase the burden on businesses by 1.7%-1.8% of the GDP, or 900 billion roubles. "Therefore, the compensation we have planned will cover more than a half of the rise," he said.
Deputy Economics Minister Stanislav Voskresensky estimates that the shortfall due to the profit tax cut will be lower than 400 billion. He said that Russian companies' projected 2009 profits are uncertain because of the drop in most products' prices.
According to Mr Voskresensky, these proposals should not be even viewed as compensation to companies for the unified social tax rise. "It is the government's prompt response to current developments. By April, we'll draw up a solid package to optimize the country's tax system, also considering the compensation in question," he explained.
Admittedly, none of the government officials who spoke Thursday tried to estimate next year's gross profit of Russian companies, which is the basis for forming a profit tax.
