Vyacheslav Isaikov
On technology and taxes
The Government does not pay much attention to high technology. This is a luxury at the moment. Nevertheless, it was pondering ways to support the IT sector and the media industry.
By December 5, the Cabinet of Ministers must work out additional measures to support industry during the global financial crisis. "We have approved a plan of measures, and it will be expanded," said First Deputy Prime Minister Igor Shuvalov, thus giving hope to the IT sector and the media industry. According to Mr Shuvalov, the goal to be achieved through state support is clear - "modernise these sectors on the basis of new technology."
The agencies concerned are already queuing for state support. Among them is the construction sector, which has been growing so fast in the past years that it has brought Moscow to the top list of the most expensive cities in the world in terms of housing prices. Another is the banking sector, which has been issuing foreign currency loans at double-digit interest rates. Then there is the oil sector, which has been prospering from extremely high oil and petrol prices. Add to this agro-business and even major trade networks. It seems there are no sectors or companies in this country which have not asked for state support.
However, it turns out there are some. A Government source said at a recent meeting of the Government's transport and communications commission chaired by Deputy Prime Minister Sergei Ivanov, Igor Shchegolev, Russia's Minister of Communications and Mass Media, called for support of the IT sector. His proposal was to use the monies of the Russian Investment Fund for Information and Communication Technologies (Rosinfocominvest) set up a year ago as a source of state support, without an additional share issue. The source also said that it was possible to reduce financing of the innovation IT projects from 100 million to 50 million roubles, to help more companies.
These are not, however, all of the ministry's initiatives. Officials from the Communications Ministry asserted that the labour remuneration expenses at the IT companies may reach 80% [of their budget]. Therefore the tax burden in the wage fund in the IT sector must be reduced. According to them, extending the five-year transition period to the IT sector, during which an increase in insurance fee rates will be compensated [from the federal budget], could provide substantial assistance.
Prime Minister Vladimir Putin also talked about the five-year transition period when announcing ways to promote pension reform, with the unified social tax to be replaced by insurance fees and the fees for mandatory pension insurance to be collected at a single rate of 26% from the annual wage level of up to 415,000 roubles. Then he instructed the Finance Ministry and the Economic Development Ministry "to think it over and submit their respective proposals."
Judging by all signs, it will take time to consider it. The parameters and the mechanism of the five-year transition period have not been defined yet. However, the Prime Minister explained that "an increase in insurance fee rates will be compensated from the federal budget for organisations to which a special tax regime is applied today." According to Mr Putin, the matter concerns small businesses in the high-tech sectors and agricultural producers. Over the said period, the sectors and related business must adapt to the new system.
Mr Putin admitted that the adopted decisions were not simple and they placed great responsibility on the Government, as well as employers and citizens. However, even at that moment the Prime Minister encouraged the IT sector: the thing is that some four year ago, he supported cuts in the unified social tax for enterprises operating in the high-tech sectors, though the tax rate was cut for all. "On the whole, cuts in the UST are substantial, but they may not be enough for IT companies in the high-tech sectors," said Mr Putin, who was Russian President then. He recommended that the Government further examine substantial UST cuts for enterprises in high-tech sectors.
This, however, has not happened. Now he will have to personally deal with the implementation of his ideas. "The Russian tax system is oriented, above all, to raw materials companies, where the ‘well' is the main constituent of the production process and the share of labour is much lower. Everything is different in high-tech sectors where the main ‘labour instrument' is the computer, while the end product is solely the result of intellectual activity," an expert says. Here you will feel to the full extent the UST deductions from the wages of numerous computer specialists and programme designers.
Therefore, analysts say, an increase in insurance fees will not help to break away from the raw materials economy: it will again create barriers to progress in spheres connected with intellectual labour and high-tech production.
However, this is not the first attempt by the Communications Ministry to protect the IT sector.
A month ago, Igor Shchegolev advocated proposals to support exporters, reduce profit tax and cut import customs duties on the technical equipment and components required for the production of high-tech goods which are not produced in Russia.
Vladimir Putin recently announced some tax novelties (including cuts in profit tax and tax on small businesses, as well as a 30% increase in bonus depreciation). These have made it possible to balance the bulk of the tax burden caused by the replacement of the unified social tax by insurance fee payments. Shchegolev could thus celebrate a small victory, for the Government's package included his proposals as well. The federal budget will lose 556 billion roubles (which is equivalent to 1.1% of the country's GDP) from tax cuts.
However, the Government promised to return to the issue of possible changes in key taxes, including VAT cuts. Perhaps for this reason, Shchegolev hastened to offer versions of state support for the IT sector which are less costly for the budget.
The thing is that companies in the global IT market associate the most unusual and promising innovations with Russian high-tech specialists. Programmers from Russia have been imported for several years now, and this occupation is popular and profitable. The IT market participants are convinced that tax cuts for the IT companies will help them compete more successfully on the global market with producers from other countries with lower taxes on the sector. These are, primarily, India and China. The Russian Government must tell us soon whether this country needs high technologies.
Moscow issue