April 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
Edited by: Russian Microfinance Center

RF Tax System

On April 23 and 24, the Russian Government met to discuss issues of 2003-2005 tax reform. The following proposals were approved:

- in 2004, lowering VAT to 18 percent, lifting sales tax, etc.
- in 2005, lowering the effective unified social tax (UST) rate from 35.6% to 26%.

The Ministries of Finance, Economic Development and Trade, Taxes and Levies were instructed to produce, within two months, their proposals on establishing tax incentives for small business and innovation (SME taxation reform).
Related bills are expected to be launched in the State Duma soon.

Adopted Normative Legal Acts:

• Ministry of Taxes and Levies (MTL) Order of 3 April 2003 No BG-3-22/164 amending the Guidelines on the application of Chapter 26.3 of the RF Tax Code, The System of Taxation in the Form of Imputed Income Tax for Certain Types of Operations, approved by MTL Order of 10.12.2002 No BG-3-22/707
  The Order was not officially published.
  • The guidelines on the application of Chapter 26.3. of the RF Tax Code, The System of Taxation in the Form of Imputed Income Tax for Certain Types of Operations, are amended.
  • Provisions of the Guidelines which explain the procedure for establishing the number of employees and vehicles taken into account in IIT calculation have been further clarified. The number of employees, for the purposes of IIT calculation, is the average payroll, including part-time employees, involved in operations taxed under IIT.
• Ministry of Taxes and Levies (MTL) Order of 9 April 2003 No BG-3-21/177 approving the Guidelines on the application of Chapter 28, Part 3 of the RF Tax Code, Transport Tax
  Published in the supplement to Uchet. Nalogi. Pravo.- Official Documents of 23 April 2003. No 15.
  • The application of Tax Code Article 28, Transport Tax, are clarified, including the indication of taxpayers, object of taxation, taxable base, taxation period, tax rates, calculation procedure.
  • Means of transportation include land, air and water transport, and the list is non-exhaustive.
  • The taxpayers of this tax are determined on the basis of reports from state agencies registering vehicles.
  • The document lists circumstances whereby someone who uses a vehicle by proxy is obliged to pay this tax.

• The Government introduced the draft of the new Tax Code chapter, Corporate Profit Tax. The bill proposes the following:
  • Reducing the number of objects of taxation; only fixed assets are recognized as the object of this tax; only real estate is taxed in case of foreign organizations which do not operate in Russia through representative offices.
  • Increasing the rate from 2 to 2.6 percent.
• A group of State Duma deputies (M.M. Zadornov, P.A. Medvedev, S.I. Shtogrin) launched a bill amending Articles 217 and 224, Part 2 of the RF Tax Code (endorsed by the RF Government).
  • The bill aims to regulate the taxation of interest received by individuals on their bank deposits.
  • The bill proposes to tax interest only if it exceeds the RF Central Bank rate (currently, interest exceeding ? of the CB rate is taxed).
  • The RF Government endorsed the bill.

• Amendments to the Federal Law on SME support in the Russian Federation.
• The bill would allow credit institutions to make SME credits up to 300,000 rubles in cash ("over the counter")

• A bill amending the RF Criminal Code, sponsored by the President, passed the first reading.
• The Criminal Code would be amended by a new article, Failure to fulfill the responsibilities of a tax agent.

• RF Government Decree of 25 April 2003 No 242 amending RF Government Decree of 17 September 1999 No 1046 establishing procedures for the registration of projects and programs of technical assistance, the issue of documents to certify funds, products, and services as technical assistance, and the supervision of its appropriate utilization
  Published in Rossiiskaya Gazeta of 6 May 2003 No 73.
• The amendment specifies that special purpose vehicles may be part of technical assistance, etc.