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Alexei Kudrin said Friday that he disapproves of significantly cutting value added tax while Russia is battling terrorism
Russian Finance Minister Alexei Kudrin said Friday that he disapproves of significantly cutting value added tax while Russia is battling terrorism. "Russia is currently fighting a war against international terrorism in the North Caucasus," Kudrin said. "It requires additional efforts and expenses. Countries involved in such armed conflicts seldom venture a significant tax reduction." On October 8, Prime Minister Mikhail Fradkov ordered the Finance Ministry and Economic Development and Trade Ministry to cut VAT from 18% to 13% starting in 2007 as a measure to boost economic growth. Kudrin also said the tax cuts would be inefficient without the reduction of shadow taxes that criminal gangs and corrupted state bodies levy on businessmen in the North Caucasian republics. "I think we are not making enough effort in this sphere," he said. "If we do not cut corruption-related shadow taxes, the effect from the reduction of legal taxes will be minimal or zero." The minister also said any serious tax cuts meant the reduction of state expenses and, accordingly, social liabilities of the state. "We should determine whether we are ready to restrain and reduce the growth of state social liabilities," he said. Earlier this week, Economic Development and Trade Minister German Gref also cast doubt on the wisdom of cutting VAT. "VAT is one of the most stable and effective taxes and it does not depend on the price of oil," Gref said, adding that the key risk was a sharp fall in oil prices.
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