Russia : Finance Ministry against proposal to cut VAT

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Finance Ministry against proposal to cut VAT

04
Aug '08

The Economic Development Ministry of Russia has proposed a one third cut in value-added tax (VAT) bringing it down from 18 to 12 percent. However, if the proposal gets an approval, it is likely to come in direct conflict with the Finance Ministry which openly rejects such a measure.

The Finance Ministry expressed its disapproval to the media through Mr Alexei Kudrin, Finance Minister, who reasoned that such reduction in VAT would be an absolutely destructive measure for the entire industrial sector.

While the President has favored a slash in tax, Prime Minister Vladimir Putin has called for the dispute to be resolved by August. There are implications that a lower VAT rate could be implemented as early as 2010.

However, certain economists have pointed out that lowering tax would severely squeeze Government's budget and adversely impact the oil market. Besides, such a move cannot be justified unless accompanied by reduction in Government spending. Some have even gone to the extent of saying that VAT cut may be an effective way to boost growth but an unnecessary one.

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