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08/01/2008
Economy Ministry Seeks VAT at 12%
By Marianna Tishchenko / Special to The Moscow Times
The Economic Development Ministry is proposing cutting value-added tax by one-third, from 18 percent to 12 percent, in a step that is likely to bring the ministry into conflict with the Finance Ministry, which opposes a reduction.
Deputy Economic Development Minister Stanislav Voskresensky told reporters during a presentation on tourism and recreation in the Altai region that the proposal had been submitted to the government. The ministry has yet to see any of the Finance Ministry’s proposals on reducing VAT, he said.
President Dmitry Medvedev has backed the idea of cutting VAT, while Prime Minister Vladimir Putin has called for the dispute over VAT to be resolved by August. A lower VAT rate could take effect as early as 2010.
No one at the Economic Development Ministry was available to comment Friday, and Finance Ministry spokespeople declined to immediately comment.
Much to the dismay of Finance Minister Alexei Kudrin, who has said that cutting VAT could wreak havoc on the country’s economy, Medvedev and Putin have sided with the industrial lobby, which has publicly supported it.
“Such a reduction of VAT [would be] an absolutely destructive decision,” Kudrin told reporters June 25.
Economists were divided about the merits of the Economic Development Ministry’s proposal. “This measure could severely shrink the government’s budget and negatively impact the oil market,” said Alexander Morozov, an economist for HSBC in Moscow. “The risk associated with lowering VAT to 12 percent is not justified unless the move is accompanied by a significant decrease in government spending.”
Natalya Orlova, chief economist at Alfa Bank, called the VAT cut an effective way to bolster growth but said it was unnecessary.
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