Businesses in Russia to Pay Higher Taxes from January 2011

Nov. 24 – Businesses in Russia will pay more taxes, Finance Minister Alexei Kudrin stated at a conference on taxation in Moscow.

The country will implement tax increases equivalent to 2 percent of gross domestic product next year, he said. Starting in January, company payroll taxes will rise to 34 percent from 26 percent. For small businesses, they will rise to 34 percent from 14 percent.

The government needs to boost taxes to help meet its spending plans, including a 9 percent rise in pensions next year, Prime Minister Vladimir Putin said on July 28.

The government also expects to raise US$15 billion from new regulations on the export of oil and petroleum products.

Export duties will be abolished for oil and oil products sold to the Customs Union countries, while instituting higher levies on oil-product exports from Belarus, Russia and Kazakhstan, Kudrin told reporters after the conference. Russian companies will be compensated for the higher overall level of export duties they’ll incur as a result.

Oil companies may receive a break in the mineral extraction tax, but gas companies may be charged up to 61 percent more next year if the finance ministry’s plans are finalized, and peg increases in 2012 and 2013 to the estimated level of inflation.

Russia’s low 13 percent flat tax on personal income will remain unchanged, presidential top economic adviser Arkady Dvorkovich said at the same conference.

OAO Sberbank Chief Executive Officer German Gref, a former economic development minister, spoke in opposition to the tax hikes. Small businesses “cannot be stripped naked,” he said.

“Tax boosts already humbled small businesses,” Sergey Borisov, president of Opora, said to the Vedomosti. “Now we are waiting for the mass liquidation of small businesses, while some of them will withdraw into the shadows.”

Speaking in the final session, Michael Danilack, a deputy commissioner at the U.S. Internal Revenue Service, praised his Russian colleagues for creating a modern tax service in the relatively short span of two decades.

During this decade, the number of taxes has fallen from 50 to 17 and collection has risen from about US$15.5 billion in 1996 to US$245 billion in 2010. Greater automation and an “improved interface with payers” are problems that remain outstanding, Mikhail Mishustin, director of the Federal Tax Service, said.