August 2003

This material is provided through the support of the US Agency for International Development (USAID) and the Department for International Development (DFID) under agreements with the Russian Microfinance Center and Fund "FOR A." This review is for information purposes only. Neither the authors of this review nor the Russian Microfinance Center shall 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

Due to parliamentary recess, the State Duma did not adopt any new laws on taxes in August. However, last month was the time of intensive preparation for the next parliamentary period to be opened on 8 September by a plenary session of the Duma.

The Government produced a list of bills to be considered by the Duma as a matter of priority during the fall of 2003. It includes, in particular, the following draft laws:
- On the 2004 Federal Budget;
- A new chapter of the Tax Code on Corporate Property Tax;
- On insuring deposits by private individuals with Russian banks;
- On currency regulation and control, and others.
The Government suggested that the Duma adopt the bills as a whole this fall.

As part of the budget drafting process, the Government submitted the bill on the 2004 Federal Budget to the State Duma. The projected inflation rate is 10 percent. The next year's projections of federal revenues take into account expected amendments of the tax legislation, as well as effective laws. In particular, the Government projects additional revenues due to the introduction of VAT accounts on 1 July 2004. It is likely that in the coming months the Government will draft and submit to the Duma a related bill on VAT reform.

Adopted Normative Legal Acts:

• Government Direction of 15 August 2003 No 1163-r
  The text of the Direction is published in Rossiiskaya Gazeta of 2 September 2003, No 173.
  • The Government approved the Program of Russia's social and economic development for the mid-term (2003-2005). This document establishes the main targets of social and economic development and defines measures needed to meet them.
  • The following measures are proposed in the area of tax reform:
    - improved administration of certain taxes (VAT and UST in the first place);
    - improved system of property taxation (including the introduction of relevant Tax Code chapters in 2004-2005) ;
    - lifting some of the tax burden off the wage funds through lowering the effective UST rate in 2005, etc.
  • ¢ The following measures are proposed in the area of monetary and credit policies:
    - gradual lowering of inflation rates in the next three years from 15 percent in 2002 to 5.5-7.5 percent in 2006;
    - creating favorable conditions for the Russian ruble to become a fully convertible currency;
    - moderating exchange rate fluctuations in the internal monetary market (floating exchange rate).
  • ¢ Measures aimed at small enterprise development include those which promote micro-lending (see the next section for more information on banking reforms).

• The draft document on monetary and credit policies for 2004
  Introduced by the Central Bank.
  • Depending on the situation in the world economy and the dynamics of oil prices, the document looks and two possible scenarios of the country's macroeconomic development in 2004.
    - Scenario 1 is based on the Russian oil price of 18.5 USD per barrel;
    - Scenario 2 is based on the Russian oil price of 22 USD per barrel;
  • The goal of the 2004 monetary and credit policy is to limit the growth of consumer prices (i.e. the inflation) to 8-10 percent (December 2004 as compared to December 2003).
  • In 2004, the Central Bank will continue its policy of 'managed floating exchange rate'. The annual average RUR/USD exchange rate is projected at 31.7 for Scenario 1, and 31.3 for Scenario 2.
  • The document details the Central Bank's plans to improve Russia's banking system, banking supervision, financial markets, and payment systems in 2004. In particular, the following measures are proposed:
    - establishing the position of Central Bank-affiliated supervisors of credit institutions;
    - amending current laws on collateral and mortgage programs;
    - amending the Civil Code by providing for a new form of bank deposit agreement whereby an early withdrawal of money is only allowed in cases expressly stated in the agreement, otherwise punishable by considerable penalties, etc.
  • This document, therefore, is consistent with the Government-sponsored Program of Russia's social and economic development for the mid-term (2003-2005).
• The federal bill on the Federal Bureau of Credit Histories.
  Introduced by a group of State Duma deputies: A. Aksakov, I. Artemyev, N. Brusnikin, A. Zhukov, V. Zubov, P. Medvedev, Yu. Medvedev, S. Shtogrin
  The Duma Committee on credit institutions and financial markets is responsible for the bill.
  • The bill will establish the Federal Bureau of Credit Histories affiliated with the Bank of Russia.
  • The Bureau will:
    - receive credit history records from credit institutions;
    - compile databases of credit histories;
    - maintain and ensure security of credit histories;
    - keep records of credit history users, etc.
  • Only credit histories of private individuals will be stored.
  • A credit history may be disclosed to any person or entity subject to expressed consent of the individual whose credit information is contained therein (consent must be notarized).
  • The Government and the Central Bank have commented on the proposal. The Government is against the bill,
  • while the Central Bank finds its current version acceptable. However, the Central Bank proposed that credit histories should be kept on legal entities, as well as individual borrowers, and credit bureaus should be of diverse types of ownership (i.e. public, private:).

• Ministry of Finance Order of 22 July 2003 No 67n "On corporate accounting forms"
  Published in the supplement to Uchet. Nalogi. Pravo.- Official Documents of 13 Augustl 2003. No 29.
  • This Order applies to organizations incorporated under the RF law (except credit institutions, insurance companies, and organizations funded from the state budget).
  • The Order recommends the use of new accounting forms, namely:
    - Form No 1 Balance sheet;
    - Form No 2 Income and Loss Report;
    - Form No 3 Changes in Equity;
    - Form No 4 Cash Flow Report;
    - Form No 5 Appendix to Balance Sheet;
    - Form No 6 Use of Funds Report.
  • The Order also approved the amount of reporting under each form and the procedure for drafting and submission of accounting reports.
  • A few specific reporting rules are established for non-profit organizations. Thus, the Balance Sheet (Form No 1) of a non-profit organization musst include Targeted Funding Report in its Capital and Reserves section, instead of Equity Capital, Reserve and Retained Earnings (Uncovered Loss). If a non-profit organization does not collect relevant data, it does not need to submit forms No 3, No 4 and No 5. It is recommended that the non-profits submit the Use of Funds Report (Form No 6). The Order will apply to 2003 reporting and afterwards.
• Ministry of Finance Letter of 31 July 2003 No 16-00-14/243
  The text of the letter is published in the supplement to Uchet. Nalogi. Pravo.- Official Documents of 27 Augustl 2003., No 31.
  • The Ministry of Finance Accounting and Reporting Methodology Department informs that depreciation is not accrued on fixed assets purchased by non-profit organizations with money earned through entrepreneurial activity.
  • The letter also explains how non-profit organizations should report the following:
    - revenues from entrepreneurial activities (after taxation they are reported in Account 86 - Targeted Funding, in correspondence with the debit of Account 84 - Retained Profit ( Uncovered Loss);
    - acquired fixed assets (fixed assets are reported in the debit of Account 01 - Fixed Assets with the credit of Account 08 - Investments in non-circulating funds and the debit of Account 86 - Targeted Funds - with the credit of Account 83 - Additional Capital).

• Ministry of Finance Order of 21 August 2003 No 79n "On the approval of the standard form of the Agreement on mutual authentication of signatures."
  Registered with the RF Ministry of Justice on 27 August 2003, Registration No 5011.
  • In accordance with the pension law, insured individuals may, on an annual basis, choose a company that will manage funds accumulated on their pension account (managing company). They file an application with the Russian Pension Fund stating their choice of the managing company.
  • The Ministry of Finance has approved a standard form of the Agreement on mutual authentication of signatures to be signed between the Pension Fund and the employer. It says that the employer agrees to accept applications from its employees and forward them to the Pension Fund.
  • In exchange for this service, the employer will be paid by the Pension Fund at the rate of 4 rubles (without VAT) for each forwarded application.
  • Employers are not obliged to sign such agreements with the Pension Fund, but may choose to do so - in particular, MFIs may choose whether they wish to sign such an agreement with the Pension Fund.
  • If they choose to sign it, they will be obliged to accept applications from their employees stating their choice of managing company, authenticate the employee's signature and forward the application electronically to the Pension Fund. As the employers will receive payment for such services, they will be obliged to pay taxes on these earnings (VAT, corporate profit tax).
  • Should an MFI choose not to sign the agreement, its employees will have to send applications stating their choice of managing company directly to the Pension Fund. In such case, the signature on the application must be notarized.