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[Second Issue of the Day]
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Russian Duma okays small business tax breaks
MOSCOW, July 1 (Reuters) - The Russian parliament on Monday approved sweeping tax cuts to encourage the development of small and medium sized businesses in 2003, a key part of President Vladimir Putin's drive for faster economic growth.
The State Duma lower house of parliament also passed a new unified regional transport tax to offset the elimination of a regional road user tax, and allowed the government to up excise duties on alcohol and oil products next year.
The changes, given a third and final reading in the Duma, still require approval by the upper house Federation Council before moving on to Putin for signature into law.
The new legislation on smaller firms applies to those with fewer than 100 employees and annual revenues of up to 15 million roubles ($477,100). The businesses can choose between paying a revenue tax of six percent or a profits tax of 15 percent.
Currently, businesses have to pay a 24 percent profits tax, 20 percent VAT, and property and sales taxes.
The legislation also relieves small and mid-sized businesses of social security payments, though they must still make pension fund contributions.
The tax cut aims to encourage millions of Russians to start their own business as the state sector -- the main provider of jobs in the Soviet era -- is shrinking fast.
Putin has publicly criticised his government for failing to set ambitious enough growth targets which alone could close the gap with Western economies, but experts say only major structural reforms can achieve that goal.
Small businesses constitute the backbone of most developed economies but in Russia they account for just 10 percent of gross domestic product. Economic policy in the past decade has focused largely on nurturing industrial giants and done little to help the emergence of a self-employed middle-class.
The tax breaks are not available to businesses in the banking, insurance and investment sectors, or producers of goods subject to excise duty.
Under the amendments to excise tax, the tax on alcohol will be increased by 15 percent, with that on beer going up 25 percent and duties on oil products rising 45 percent.
The bill introduces a regional transport tax which will vary according to engine power or gross tonnage of the vehicle. The federal law sets a maximum rate for this tax and authorises the provinces to impose their own rate.
The law change was prompted by the scrapping of the regional road user tax which would have left an estimated 165 billion roubles shortfall in regional budgets in 2003.
To further offset the revenue loss the government will shift more proceeds from profit tax to the regions. Land tax and rent proceeds as well as half of excise duties on oil products will also go to regional budgets.
The government wants the changes to the tax law in place before shaping the final version of its 2003 draft budget, built around a surplus of 0.8 percent of gross domestic product.
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