March 2003

This material is provided for information purposes only under a grant from USAID through Development Alternatives Inc. and the Russian Microfinance Center. Development Alternatives Inc. and USAID shall not be liable for any damage to any organization's property due to any use of explanations, conclusions and interpretations of effective legislation contained herein.
Author: LEGEM PERFERRE
Short Version: Russian Microfinance Center

RF Tax System

There were no substantial changes in the Russian tax laws in March.
Due to differences of opinion concerning the tax reform, the Government has not yet submitted to the State Duma certain federal bills to be adopted before the end of this year. The most contentious are the issues of VAT and UST (Unified Social Tax) reform. The discussion of these issues in the Government was initially scheduled on 13 March, but then rescheduled to take place on 23 April.

On 10 April 2003 the Russian Government will meet to discuss taxation-related bills which, in particular:
- Abandon tax authorities' supervision over individual spending;
- Increase from RUR 600,000 to 1 million the amount subject to income tax deduction following the purchase of housing [real estate].


Adopted Normative Legal Acts

• RF Government Directive of 28 February 2003, No 252-ð
  Published in the Collection of the Russian Federation Laws of 10 March 2003, No 10, page 922.
  • Approves the Russian Government's 2003 plan of implementation of Russia's social and economic policies.
  • Establishes the following priorities of the RF Government: state governance reform, tax and budget reform, institutional and infrastructural reforms, etc.
  • The Government plans to implement the following tax-related changes in 2003:
    - to reform taxation of property: for organizations, to remove stored reserves, costs, and non-material assets from the taxable base for purposes of property taxation; to introduce market price-based assessment of the value of property for purposes of taxation; to reduce related tax benefits;
    - to increase consistency between accounting and taxation systems;
    - to remove advance payments from VAT base and to simplify the procedure for zero rate verification and for export-related VAT refund;
    - to reduce UST average rate;
    - to increase income tax deductions for individuals following the purchase of property;
    - to abandon tax authorities' supervision over individual spending.
  • As part of infrastructure reform, the implementation of the banking sector development strategy will continue.
• RF Government Directive of 27 February 2003, No 268-r
  Published in the Collection of the Russian Federation Laws of 10 March 2003, No 10, page 916.
  • Approves the RF Government's 2003 lawmaking plans
  • In April 2003, new chapters of the RF Tax Code will be submitted to the State Duma, namely: Land Tax, Corporate Property Tax, Individual Property Tax, Legacy and Gift Tax.
  • Plans also include the introduction in 2003 of new versions of the Forest Code, the Water Code, and the Housing Code.

• Central Bank Regulation of 10 February 2003, No 215-P prescribing the method of calculation of the credit institutions' own capital [equity]
  Registered with the RF Ministry of Justice on 17 March 2003, Reg. No 4269.
  The text is published in Vestnik Banka Rossii of 20 March 2003 No 15.
  Becomes effective after 10 days of official publication in Vestnik Banka Rossii.
  • The regulation aims to prevent artificial magnification of credit institutions' equity. It prescribes that credit institutions should not include sources of equity based on "inappropriate assets";
  • Inappropriate assets are defined as assets provided to an investor by the credit institution itself, or by others, if the credit institution assumes responsibility for any risk or loss related to the provision of such assets.

• Federal Law of 11 March 2003 No 30-FZ amending RF Criminal Code
  Published in Rossiiskaya Gazeta of 14 March 2003, No 48.
  Federal Law becomes effective on the day of its official publication.
  • The law amends Articles 171 and 172 of the Criminal Code establishing liability for entrepreneurial and banking activities performed in breech of licensing requirements.
  • The amended version establishes criminal liability for any violation of licensing requirements and conditions.
• Russian President's Decree of 11 March 2003, No 306 on the issues related to the improvement of state governance in the Russian Federation
  Published in Rossiiskaya Gazeta of 25 March 2003 No 55.
  The Decree becomes effective on the day of its official publication.
  • On 1 July 2003 the Federal Tax Police will be abolished to be replaced by the newly formed Federal Police Service on Economic Crimes under the Ministry of Interior, with a mandate to detect, prevent, and suppress tax-related crimes and offences.

• The RF Government submitted to the State Duma a federal bill amending Article 7 of the Federal Law on the protection of legal entities and individual entrepreneurs in the context of state supervision and inspection
  • The bill proposes that no inspection of SMEs should be undertaken within three years of their incorporation.
  • The Law on State SME Support defines SME as individual entrepreneurs (those operating without the status of legal entity) and commercial organizations with the following maximum number of employees over the reporting period:
    - industrial enterprises - 100 employees;
    - construction and transport - 100;
    - agriculture - 60;
    - wholesale trade - 50;
    - retail trade and services - 30;
    - other sectors and operations - 50.