Temporary Centralization of Profit Tax Revenues is Not Applied to Residents of Special Economic Zones Any Longe
It is commonly known that from the beginning of 2017 in order to ensure the equilibrium of the RF budget system the norms of distribution of corporate profit tax revenues between the federal budget and the budgets of the constituent entities of the RF in favor of the federal center were temporarily modified.
In general, in 2017–2020 the federal center receives 3% (instead of 2%) of tax revenues from legal entities’ payments provided for by Chapter 25 of the Tax Code of the Russian Federation. The share of participation of the RF constituent entities in tax revenues has been reduced from 18% to 17% with the extension of the right to reduce the regional tax burden to 12.5%, instead of 13.5%.
At the same time, according to the Government of the Russian Federation the modification of the norms may lead to growth in a tax burden on residents of special economic zones (SEZ) due to their taxation specifics. So, a decision was taken to renew for SEZ residents the previous profit tax rates: starting from the 2017 fiscal period 2% in the federal part, while from 2018 maximum 13.5% in the regional part.
Higher tax burden risks are related to the fact that the zero profit tax rate envisaged for SEZ residents – this tax is paid to the federal budget – is available not to all SEZ residents, but only to those who engage in activities either in technology and innovation development zones (in calculation of the profit tax in the period prior to 2018), or the territory of a tourist cluster (up to 2023). Residents of an industrial zone, port zone, as well as a few tourist zones not included in the specified cluster are obligated to pay a profit tax like all other legal entities which do not have a SEZ status. So, a 3% growth in the federal tax rate would have worsened the taxation conditions of those investors, while as per Article 38 of the Law on Special Economic Zones all the investors with a SEZ status are guaranteed against unfavorable modification of the tax legislation.
The need to renew the norms of corporate profit tax deductions is justified by the solution of another problem. The rate of tax payable to the budgets of constituent entities of the Russian Federation at the level of 13.5% for SEZ residents is not the minimum (as for most legal entities), but the maximum one, so its reduction to 12.5% would mean limitation at the federal level of regions’ budget capacities.
Apart from SEZ residents, the RF Government’s initiative which has found its way into the tax legislation applies to SEZ residents of the Magadan Region and a special economic zone established in the Republic of Crimea and Sevastopol, a city of federal importance.
Vladimir Gromov, PhD, Economics, Fiscal Policy Research Laboratory, Gaidar Institute, RANEPA
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1 See an explanatory note to draft federal law No.269132-7
2 Federal Law No. 348-FZ of November 27, 2017 on Amendment of Article No.284 of the Tax Code of the Russian Federation.