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The Russian government and businesses have agreed to postpone discussion of a progressive tax on profit, the size of which would depend on the amount of dividend payments and investments, until at least 2023, the head of the Russian Union of Industrialists and Entrepreneurs (RSPP), Alexander Shokhin said following a meeting with Prime Minister Mikhail Mishustin.
"We are withdrawing the tax on dividends from discussion, from amendments to the Tax Code, and discussing it in detail, as the prime minister has agreed and, incidentally, the Finance Ministry has agreed, that it is still a little raw," Shokhin said.
"Business is basically satisfied that this bill is not going to be adopted in a hurry from the back of a cigarette pack, as they say. Therefore, we believe that at minimum we need to put the timeframe for its entering into force back to January 1, 2023 and fine-tune it. It might turn out that another mechanism is needed here anyway," he said.
Speaking at the meeting with cabinet members, Shokhin said changing the profit tax is a "serious, systemic issue, it touches on all sectors of the economy, not just mining, the ore mining sector, fertilizers, metallurgy and so on."
"Here the fiscal aspect is certainly not the main thing. The main thing is fair distribution of profit and effective investment, and solving social problems," Shokhin said.
In the current version of the bill to amend the second chapter of the Tax Code, businesses are most concerned that it is retroactive, he said. "While it stops short of making them technically illegitimate, it essentially calls into question actions the taxpayer took in the previous tax period plus another four years, that is, for five years," Shokhin said.
"We believe that if we are to work on this issue, we need a substantial transition period and a higher rate can be applied for a tax period no earlier than 2022," he said.
He also recalled that the current version of the bill called for exempting state companies from the new rules for calculating profit tax, although the Tax Code directly prohibits setting differentiated tax rates depending on form of ownership.
"With the Finance Ministry we noted that it's wrong to look at individual companies, it's right to look at a group of companies as a whole. The bill in its current version does not solve this problem," Shokhin said.
Businesses also believe that, when assessing investment, it is important to take into account the investments of special purpose vehicles, investments in other, noncore sectors of the economy that are made with the dividends of company shareholders, he said.
"The long cycle of investment, which exceeds 10 years in a number of sectors, is also not taken into account. There are a number of questions regarding the bill. How to calculate amortization, unfinished construction," Shokhin said, listing the shortcomings of the current version of the bill drafted by the Finance Ministry.
"We're prepared to work on this bill, but believe that there are currently so many contentious issues that we will not manage to answer all questions in this budget cycle. Therefore, Mikhail Vladimirovich, we have a big request to take these amendments to the Tax Code off the table now and hold a discussion, and then after this, when all these issues are worked out, submit it, keeping in mind that it can go into effect as of January 1, 2023," Shokhin said, speaking to the prime minister.
He said businesses have no interest in dragging out the discussion on the profit tax. "This doesn't mean that we would like to shelve it. Of course, it's very important to discuss fairly quickly, including because entrepreneurs and investors, and company shareholders need clarity soon so that they can make investment plans and decide on Russia's appeal as a country for investment," Shokhin said on TV channel Rossiya24.