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Without a Serious Fundamental Base, It is Groundless to Speak About a New Growth Trend

10 june 2014

The Rosstat has recently made public a new assessment of Russian GDP growth rates in May 2014. According to that assessment, last month’s growth amounted to 0.5% and sustained stagnation was observed in the Russian economy.

The European Central Bank Stimulates Investment Activities in the Euro Area

06 june 2014

On June 5, the European Central Bank reduced the key interest rate by 0.1 p.p. fr om 0.25% per annum to 0.15% per annum, as well as the overnight deposit rate from 0% to -0.1% per annum. The lending rate decreased from 0.75% per annum to 0.4% per annum.

Real accrued wages per worker go up

04 june 2014

In the period between January and April of 2014, the household real disposable income accounted for 98.8% of the value seen in the same period of 2013. The measures aimed at implementing the Russian President's Executive Order of May 7, 2012, No. 597 On Measures to Implement State Social Policy for 2012 are still resulting in a faster growth in wages in education and healthcare and social services. In Q1 2014, the level of inequality slightly improved compared to that in Q1 2013.

Russia has a potential to boost grain exports

02 june 2014

Possessing the world's largest reserves of fertile lands (accounting for 55% of the world's fertile lands, of which 25% are arable lands, according to the World Bank's estimates), Russia may turn into a key player in providing the global food security. Over the last 25 years since the collapse of the Soviet Union, the former importer has turned into a world's largest grain exporter.

In North Caucasus, There is a Lack of Real Institutions

30 may 2014

In mid-May, the Ministry for Development of Regions of North Caucasus was established. Earlier, experts made forecasts that after the Olympic Games in Sochi the North Caucasian Federal District would be abolished and merged with the Southern Federal District. However, no aggregation of governing entities took place. On the contrary, in accordance with the model which has already been tested in the Far East and Crimea apart from the office of the special representative the Ministry for Development of Regions of North Caucasus was established.

The ruble’s depreciation kick-starts investment growth in mortgage residential lending

29 may 2014

The total volume of mortgage residential loans (MRLs) provided in Q1 2014 was 47.43% above the volume of such loans provided in Q1 2013. Furthermore, a total of 198082 loans worth Rb 334,73bn were provided during the quarter. The contraction of the share of overdue liability on MRLs is indicative of ongoing deterioration in the quality of mortgage loans.

Stabilization of the Ruble will Permit to Reduce the Effect of Transfer of the Exchange Rate Value into Prices

29 may 2014

At the St. Petersburg International Economic Forum, Alexei Ulyukaev, Minister of Economic Development said that in 2014 the maximum value of the inflation rate would be reached at the end of May and it would amount to 7.5% per annum.

The Russian Central Bank’s Forecast of the Capital Outflow at the Level of $85bn is Fairly Realistic

27 may 2014

Within the frameworks of the St. Petersburg International Economic Forum, Elvira Nabiullina, Chairman of the Central Bank of Russia said that in 2014 the Russian Central Bank forecasted a capital outflow fr om Russia at the level of $85bn-$90bn. It is to be noted that only in Q1 2014 the capital outflow amounted to $63bn with internal conversion and purchasing of cash foreign currency by households and companies accounting for two thirds of that amount.  

As a Result, Accumulated Reserves Will Be Squandered

26 may 2014

Within the frameworks of the St. Petersburg International Economic Forum, Vladimir Putin, President of the Russian Federation promised cheap long-term financing to speed up growth rates of the Russian economy which is close to the state of stagnation.

There May Be No Demand in Investments

26 may 2014

At the International Economic Forum in St. Petersburg, Vladimir Putin, President of the Russian Federation declared that capitalization of Russia’s important backbone banking and financial institutions would be increased, including by way of conversion of subordinated loans into preferred stocks which measure would permit banks to extend more loans to the economy and make loans less expensive.

The European Union Has Started a Third Dispute Within the Frameworks of the WTO Against the Russian Federation

22 may 2014

On May 21, 2014, the European Union has submitted to the WTO's Secretariat a request to hold consultations with the Russian Federation on antidumping duties introduced by the Eurasian Economic Commission on low-tonnage trucks from Germany and Italy.

On the Results of the 2011-2013 Privatization Program

20 may 2014

A three-year privatization program for the 2011-2013 period – the first program in the latest Russian history – was approved by Resolution No.2102-r of November 27, 2010 of the Government of the Russian Federation.

Economic growth rate is expected to slow down

14 may 2014

According to mass media, tomorrow the Ministry of Economic Development will present a new version of the socio-economic projection in the Russian Federation in 2014–2017. The Ministry of Economic Development (MED) recommends, as it did in the previous year, the most conservative scenario as the baseline scenario in the adjusted version of the projection. This scenario shows that Russian GDP will grow 0.5% in 2014, 2% y-o-y in 2015 (comparing to 1.1% and 2.4% respectively, as provided in the previous April version of the projection).

Structural constraints dwarf economic growth in Russia

14 may 2014

The Ministry of Economic Development (MED) has admitted that national economic development is facing increasingly serious problems, because GDP may have been declining. For example, the MED doesn't rule out a 0-01% decline in GDP in Q2 2014. Two quarters of falling GDP implies a technical recession.

A proposal on amending the procedure for taxation of individual’s income fr om disposal of assets

12 may 2014

The Ministry of Finance of Russia  has  published  a blueprint of The Guidelines of the Fiscal  Policy of  the Russian Federation in 2014 and Planning Period of 2015 and 2016 and 2017.  Overall,  the  blueprint  contains  no  proposals  which  previously  were  not  considered.

At the  same time,  the  foregoing  document  contains  a few  proposals  which  may be  regarded as  material. In particular,  it has  been  suggested that  the  procedure  for  taxation of  individuals’ income  generated  from  the disposal  of assets  (property) should be changed.  

The currently  applicable  procedure  for taxation of  individuals’ income  generated  from  the disposal  of assets  has  some  weak  points.  For example, even where  a single  residential  property  is owned at the moment of disposal of  the living  quarters  and  purchase  of  a new  residential  apartment,  if  the  former  has  been  owned  for  less  than  three  years,  the  owner as physical  body  is to  pay  the  tax.  In practice,  many  individuals (physical  bodies)  tended to  understate  the  value  of  purchase and sale  transaction  to  avoid  taxation  and  were exposed to  the  risk of  losing  their  property.  

The blueprint  suggests  the income generated from the disposal of  residential real  property  should be   exempted from  taxation  regardless of   ownership  period, provided that  the taxpayer  owns  no  residential  real  property  other than  this  one.  Should  the  physical  body (individual)  owns  more  than  one  real  property  at  the  moment  of  disposal of the  residential real  property,  the income from the  disposal  of the same  is  to be  exempted  from  taxation  if  the following  terms and  conditions  are  met:

  • income generated from selling this real property is not beyond Rb 5m (the amount may be reduced by the government authorities of a constituent entity of the Russian Federation on whose territory the residential property for sale resides);
  • the real property has been owned within three years or beyond (the government authorities of a constituent entity of the Russian Federation on whose territory the residential property for sale resides may extend the period up to 10 years).

It should  be noted  that  if  this  proposal  is  introduced  in the  Customs Union  member  countries,  the  terms of  taxation   of  individuals’ income  generated  from  the disposal  of assets would  look  less  appealing.  In Kazakhstan,  income from sold  assets   are  subject  to taxation,  provided that   the  real  property  is  owned  less than  a year, while in Belarus, to the  extent that  more  than one  real property of the same type  have been  sold  within 5 years, i.e. the  rule doesn’t  cover  the disposal of  a  residential  apartment  or  a dacha (country house).  

This  proposal  will  prevent  the usage  of  tax avoidance  schemes  where  no more than one residential property is owned,  however  residential apartments  may  become  less  appealing  in terms of  investment  while   revenues  from  taxation of  individuals’ income  generated  from  the disposal  of assets  (property) are  expected  to  grow.

 Elena Velikova, a senior researcher of  Gaidar  Institute’s  Tax System Development Department  

The Ministry of Finance of Russia  has  published  a blueprint of The Guidelines of the Fiscal  Policy of  the Russian Federation in 2014 and Planning Period of 2015 and 2016 and 2017.  Overall,  the  blueprint  contains  no  proposals  which  previously  were  not  considered.

At the  same time,  the  foregoing  document  contains  a few  proposals  which  may be  regarded as  material. In particular,  it has  been  suggested that  the  procedure  for  taxation of  individuals’ income  generated  from  the disposal  of assets  (property) should be changed.  

The currently  applicable  procedure  for taxation of  individuals’ income  generated  from  the disposal  of assets  has  some  weak  points.  For example, even wh ere  a single  residential  property  is owned at the moment of disposal of  the living  quarters  and  purchase  of  a new  residential  apartment,  if  the  former  has  been  owned  for  less  than  three  years,  the  owner as physical  body  is to  pay  the  tax.  In practice,  many  individuals (physical  bodies)  tended to  understate  the  value  of  purchase and sale  transaction  to  avoid  taxation  and  were exposed to  the  risk of  losing  their  property.  

The blueprint  suggests  the income generated from the disposal of  residential real  property  should be   exempted from  taxation  regardless of   ownership  period, provided that  the taxpayer  owns  no  residential  real  property  other than  this  one.  Should  the  physical  body (individual)  owns  more  than  one  real  property  at  the  moment  of  disposal of the  residential real  property,  the income from the  disposal  of the same  is  to be  exempted  from  taxation  if  the following  terms and  conditions  are  met:

  • income generated from  selling  this  real  property  is not  beyond Rb 5m (the amount may be  reduced  by  the  government  authorities  of  a constituent  entity of the Russian Federation on whose territory the residential  property for sale resides);
  • the  real  property  has  been  owned  within  three years  or  beyond  (the  government  authorities of  a constituent entity  of the  Russian Federation  on whose territory the  residential  property for  sale resides  may  extend  the  period  up to 10 years).  

It should  be noted  that  if  this  proposal  is  introduced  in the  Customs Union  member  countries,  the  terms of  taxation   of  individuals’ income  generated  from  the disposal  of assets would  look  less  appealing.  In Kazakhstan,  income from sold  assets   are  subject  to taxation,  provided that   the  real  property  is  owned  less than  a year, while in Belarus, to the  extent that  more  than one  real property of the same type  have been  sold  within 5 years, i.e. the  rule doesn’t  cover  the disposal of  a  residential  apartment  or  a dacha (country house).  

This  proposal  will  prevent  the usage  of  tax avoidance  schemes  where  no more than one residential property is owned,  however   residential apartments  may  become  less  appealing  in terms of  investment  while   revenues  from  taxation of  individuals’ income  generated  from  the disposal  of assets  (property) are  expected  to  grow.

 Elena Velikova, a senior researcher of  Gaidar  Institute’s  Tax System Development Department  

IMF has good reasons for announcing that Russian economy is facing the onset of a recession

06 may 2014

Late in April 2014,  Head of  International Monetary Fund in Russia  Antonio Spilimbergo officially  announced  that  the  Russian economy had  entered  a recession  phase.