Russia Considering Manufacturing Industry Investment Tax Incentives

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The Russian Finance Minister Anton Siluanov has confirmed that the government is preparing tax incentives aimed at improving labor productivity, during comments at the Russian Council for Strategic Development and Priority Projects. “These proposals will include measures aimed at increasing labor productivity on enterprises,” he said.

The remarks come following criticism from President Vladimir Putin concerning the overall performance of labor in Russia, who stated, “in general, in terms of indicators in this area (labor productivity), Russia is more than twice inferior to efficient economies, and thanks to the powerful technological progress that is currently developing in the world, this gap may seriously increase if we do not respond to it in time”.

He called the need for an increase in labor productivity – “a key issue of the economic development” – and compared the growth of Russian labor productivity in the domestic aircraft industry. In 2012, labor productivity grew by 15.6% in 2013, and by more than 29% in 2014, he said, while acknowledging that this has declined slightly in 2015 and 2016.

President Putin also quoted employment data provided by the Organization for Economic Cooperation and Development (OECD), and suggested that Russia needed “to boost the productivity of labor, annually by at least 5 to 6 percent” and stated that the tax regulatory system should be revised “to eliminate excessive barriers preventing development of the modern labor market, create additional incentives for companies to improve performance, implement technology upgrading, and create new jobs”.

It is uncertain what tax incentives will be introduced, and how. Russia’s personal income tax stands at 13 percent; however, employers pay an average 20 percent on top of this to cater for unemployment, pension, insurance, housing and other mandatory costs. It could also be that the country introduces incentives aimed at reducing profits taxes in order to boost the potential for foreign direct investment and domestic reinvestment. However, the need to drive Russia forward under pressure from low oil prices and economic sanctions is pushing the country to become more competitive.

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