The Russian government's proposal to reduce value added tax from 18% to 13% is questionable

Friday, February 3, 2023

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The Russian government's proposal to reduce value added tax from 18% to 13% is questionable, World Bank experts said in a report Tuesday. According to the Bank, the recent initiative proposed by the Russian government could be seen in the light of high oil prices as an attempt to share surplus profits with the private sector. However, the Bank said this initiative was questionable because VAT was the only major source of revenues for the federal government that remained largely unaffected by oil and gas price fluctuations. The reduction of the tax general burden through the use of surplus profits could be very promising for Russia, the experts said. Lowering the average level of the tax burden could increase the competitiveness of the Russian economy and partially compensate for the appreciation of the ruble. The accumulation of ineffective state investment programs and populist social expenditure on the background of rising oil prices, on the other hand, could destabilize the economy, the Bank said. Mikhail Kopeikin, deputy chief of the government staff, proposed reducing the VAT in January 2005, although Prime Minister Mikhail Fradkov said at a news conference on October 11 that the final decision on VAT reduction had not been made yet. The proposal met strong opposition from Minister of Economic Trade and Development German Gref and Finance Minister Alexei Kudrin. Both said earlier that VAT reduction was too risky and could destabilize the Russian economy.

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