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One year on, Russian officials change tune on tax policy

The prospect of raising Russia’s corporate taxes was criticised by officials at last year’s St Petersburg economic forum as a counterproductive move that would suppress investment. This year, those same officials have changed their tune.

The government approved tax hikes last week for companies and wealthy individuals that could provide an extra $30 billion to next year’s budget revenues, and proposed other increases on mining rents, all of which could give Russia more spending power as it wages war in Ukraine.

Economy Minister Maxim Reshetnikov and Maxim Oreshkin, now deputy head of the presidential administration, both voiced opposition to tax hikes last year.

But on Thursday they cast the increased corporate tax burden as a structural change that could boost regional and infrastructure development.

“The important question is who we are taking from and what we spend it on. That is, this issue is no longer just the increased tax burden, but a structural change in the economy,” said Oreshkin.

“Unlike the situation last year, the funds that will now be mobilised are being directed to development programmes that will…create infrastructure for external markets, improve the quality of personnel training and solve the problems businesses are facing.

“Therefore, this redistribution is not just an increase, it is already a more complex construction that will produce a positive result.”

A year ago, Oreshkin said tax rises on business were “simply counterproductive” and that “the state will lose more revenue from the economic slowdown than it will hypothetically gain from higher taxes”.

Soaring spending on defence has helped Russia’s GDP rebound from contraction in 2022, but the benefit is concentrated in areas related to the military sphere and Moscow’s hefty expenditure is putting pressure on the budget.

Reshetnikov in 2023 said that “any increase in the tax burden on business will slash investments and directly impede economic growth”.

On Tuesday, he said those same tax tweaks could in fact be positive for investment, if tax deduction mechanisms in Russia’s tax code can be fine-tuned correctly.

“In general, we can, without losing economic growth rates, significantly add to the quality (of growth) through investments going to the industries where they are needed,” Reshetnikov said.

Finance Minister Anton Siluanov has stressed that the tax hikes mainly affect the wealthy and are fair, but analysts say both investment and the middle class face a squeeze.
Source: Reuters

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