Vladimir Putin has unveiled the Government's fiscal initiatives
Prime Minister Vladimir Putin chaired a meeting of the Governmental Budget Commission yesterday, at which the Government's tax initiatives were discussed.
The initiatives can be divided into three categories. The first concerns tax cuts for the mining and oil and coal production industries. The Prime Minister stated that the Government is considering the implementation of a tax holiday for the new oilfields on the Black and Okhotsk seas, and also the introduction of a decreasing coefficient for smaller ore deposits. In addition, a differentiated mining tax may be introduced in the coal mining industry. The tax rate would be correlated with coal grade.
The second category of the initiatives affects all taxpayers, as it would introduce a tax on real estate to replace the current land and property taxes. The revenues from the new tax are to go to local budgets (at present the land tax goes to local budgets while the property tax goes to regional budgets). The transition to the tax on real estate will be gradual.
According to Mr Putin, "the conditions for the transition, especially amendments to existing legislation, will not be in place before 2010". It is still unclear what the new tax's rate will be, and yet this is a critical issue for relieving the overall tax burden. Meanwhile the Ministry of Transport, without waiting for the two old taxes to be replaced by the new one, is already proposing that companies that build airports and seaports be exempt from the property and land taxes. Deputy Finance Minister Sergei Shatalov has promised Vladimir Putin that the issue will be investigated.
In connection with the increase in insurance premiums to 34%, the third initiative would, beginning in 2011, decrease the tax burden on businesses in accordance with a simplified taxation plan. Mainly small businesses would be affected. The Ministry of Economic Development and the Ministry of Healthcare and Social Development proposed the tax cut initiative. Vladimir Putin supported the ministries' initiative. However, it is still unclear how the Government is going to compensate for the undeniable rise in the social tax on medium-sized and big businesses. "The question of improving taxation is still on the agenda", Mr Shatalov admitted yesterday. He believes that the increase in insurance contributions would, beginning in 2011, increase the tax burden on business by 800 to 850 billion roubles if other taxes were not cut.
Mr Putin did not explain the impact the latest tax initiatives would have on the federal budget for 2010-2012. And yet budget priorities for 2010-2012 would be as controversial as the amendments to the 2009 budget were. The Ministry of Finance warns that in 2010 expenditures would be cut by 30% compared with the target set for 2010 under the three-year budget for 2009-2011, which was soon replaced by a one-year budget for 2009. The average cut in 2009 was 22%. In the meantime, expenditures continue to grow. In 2010, 160 billion roubles must be paid back to the state corporations, such as the Housing and Utilities Reform Fund and Rosnano. In addition, federal budget assistance to the Pension Fund will increase to 1.7 trillion roubles, compared with about 1 trillion in 2009.
In these difficult circumstances, the Ministry of Finance must put together a three-year budget that allows a maximum deficit of 5% of GDP in 2010, 3% of GDP in 2011 and 1% of GDP in 2012. The Finance Ministry promises to prepare the first draft of the budget by the end of May. But reducing the deficit to 5% in 2010 has been complicated by the fact that the 8% target set for 2009 will not be met. The reason is that the 8% deficit was calculated on the assumption that GDP would drop by 2.2% in 2009. The Ministry of Economic Development now predicts GDP will drop by at least 6%, which will increase the budget deficit in nominal terms, although it will remain at the former level, at 3 trillion roubles, in real terms.
By Maxim Tovkailo