Agenda: the key areas of tax policy for 2014-2016, executive federal agencies’ action plans and eight other issues.
Dmitry Medvedev: Colleagues, today we will discuss the main aspects of the tax policy for 2014 and the planning period of 2015 and 2016. We need a stable and effective tax system that will ensure the sustainability of the budget at least in the medium term (and ideally in the long term), boost economic growth and business activity, and enhance the development of human potential. We have discussed this document many times at various venues, including with the public, and have held several meetings on this issue. As a result, we have achieved a balance of different approaches. However, we must continue improving the tax system to make it absolutely predictable and understandable for taxpayers and upgrade its quality. I mean the quality of tax administration.
We need to keep combating the shadow economy to produce additional revenues for the federal budget. Work will continue to strengthen financial independence of the regions and municipal entities, and to support innovative and investment activity of the local governments. We must introduce property tax deductions and improve tax regulations in trade and natural resources development. It is clear that a number of issues in these areas still need to be addressed. All these approaches are reflected in the guidelines of the tax policy for the nearest future.
Among the changes and innovations proposed for the forthcoming years, I’d like to single out the introduction of a new category of taxpayers subject to special profit tax regulations: the participants in investment projects in the Far East, Trans-Baikal Territory, Irkutsk Region and Buryatia. Let’s discuss this (our experts can add something here) and see what we should do within the next few years.
Dmitry Medvedev: "We need a stable and effective tax system that will ensure the sustainability of the budget at least in the medium term, boost economic growth and business activity, and enhance the development of human potential."
The second item on today’s agenda: as you know, according to the President’s instruction, all federal bodies of executive authority must present their action plans for the next five years. They must state clearly what their main activities are and outline specific indicators to assess their performance, as well as specify all those responsible for achieving the targets set. It is important to make people know what the ministries are doing and what issues they are working on. This is also important for the dialogue between the authorities and the public, and, on the other hand, for a clearer understanding of which agencies members of the public can turn to in different situations.
Dmitry Medvedev: "Among the changes and innovations proposed for the forthcoming years, I’d like to single out the introduction of a new category of taxpayers subject to special profit tax regulations."
We will hear the reports of three ministers today: the Minister of Healthcare, the Minister of Education and Science and the Minister of Regional Development. Why are these ministries are drafting these plans? Simply because these spheres touch every person and directly influence our living standards. This work is being carried out by all heads of federal executive bodies. The plans have been drafted and must include the most important measures (not those that have been selected). They are required to reach the goals set forth in the Government’s policy priorities.
The work has been carried out under budget and resource restrictions, without new expenditure commitments. Moreover, the plans have been drafted in a way that allows us to assess the results and understand what has been done well and where we have problems. It is important not only to analyse what has been done but also to monitor compliance with target figures. We have organised expert discussions for these plans. In any event, we must make information on the implementation of these plans more accessible for public scrutiny.
The third point is about a switch to per capita funding of the programmes of higher professional education. This is a very important issue as well. We’ve been dealing with this issue for almost a decade, if not more. We started with schools. This measure is also necessary to make the performance of universities effective. We will introduce uniform transparent principles for calculating normative expenditures on every educational programme that has Government accreditation. Basic normative expenditures will be increased by coefficients that will reflect the specific features of a region, profession or industry. The highest coefficients will be established for the training of specialists in professions that are in high demand: engineers, natural sciences and medicine. I think this is also one of the most important issues we are discussing today.
Let’s start with the guidelines for tax policy in 2014 and the plan for 2015-2016. Mr Siluanov will take the floor and then we’ll have a short discussion. Go ahead, please.
Deputy Prime Minister and Chief of the Government Staff Sergei Prikhodko, Deputy Prime Minister Arkady Dvorkovich, Minister for the Development of the Russian Far East Viktor Ishayev and Minister of Natural Resources and Environmental Protection Sergei Donskoi
Defence Minister Sergei Shoigu, Minister of Labour and Social Security Maxim Topilin and Minister of Regional Development Igor Slunyayev
Head of the Federal Taxation Service Mikhail Mishustin, Deputy Minister of Economic Development Oleg Savelyev and Deputy Chief of the Government Staff Maxim Akimov
Member of the Expert Council under the Government Alexander Pochinok, and Head of the Federal Taxation Service Mikhail Mishustin
Anton Siluanov: Mr Medvedev, ladies and gentlemen. A draft of the guidelines for the 2014-2016 tax policy has been submitted for your consideration. For the first time, we reviewed this document in parliament, the Open Government and the Federation Council before it was presented to the Government.
Its main goal is to determine the main parameters of taxation for the next three years with a view toward making it predictable for business. The second most important goal is to establish guidelines for budget policy at federal, regional and local levels.
The draft guidelines do not envisage any drastic changes in tax policy. At the same time, they provide for a number of long-term mechanisms to facilitate new investment projects and encourage economic activities.
Anton Siluanov: "Today, investing in real property is more profitable than investing in securities tax-wise, and we believe it’s necessary to correct this imbalance."
I will discuss in detail the proposed tax policy measures in the medium term. The first one is creating favourable conditions for investment in the Far East, the Trans-Baikal Territory, and the Irkutsk Region. A draft law has been introduced in the State Duma that would zero the tax rate on companies’ profit owed to regional budgets during the first five years for investment projects worth 150 million roubles and more, and a 10% rate during the next five years of the investment project’s implementation. The federal budget envisions full exemption from profit tax during the whole ten-year period. In this case, the taxation scheme would be similar to that used in Skolkovo, given that the regions provide tax breaks on property and municipalities provide tax breaks on land.
The next area of focus is developing the financial sector. We believe this is a necessary condition for increasing investments in the economy. In developing proposals on this issue, we worked with experts and a working group headed by Alexander Voloshin. I will point out only the major proposals. One of them involves providing equal terms of taxation on gains from individuals’ long-term investments. Another proposal involves abolishing taxes on the sale of market securities if they are held for three years or longer. The proposed cap for this is three million roubles per year. Today, investing in real property is more profitable than investing in securities tax-wise, and we believe it’s necessary to correct this imbalance. The proposal has been made to establish individual investment accounts to encourage individuals to invest their money on the stock market. This would be an opportunity for citizens to open long-term brokerage accounts for five or more years, with special tax breaks for such accounts.
Next is sorting out the situation with the taxation of interest on payments by Russian issuers of debt securities to foreign holders, popularly known as taxation of eurobonds. I am talking both about Russian corporate bonds in centralised custody and eurobonds issued by Russian companies through SPVs. We believe there is no need to pursue fiscal aims because we won’t be able to raise a lot of money anyway. We therefore propose to stop collecting Russian tax on payments to foreign holders of these bonds. But we have to be sure that Russian taxpayers do not use foreign individuals as a cover through offshore companies.
Anton Siluanov: "The proposal has been made to establish individual investment accounts to encourage individuals to invest their money on the stock market. This would be an opportunity for citizens to open long-term brokerage accounts for five or more years, with special tax breaks for such accounts."
Other measures to change the taxation rules for financial market transactions are envisaged and these proposals should stimulate both direct and portfolio investments in the Russian financial market and bridge the gap between Russian and international taxation rules.
The next stimulative initiative is taxation of the oil and gas sector. We think the following principles should be adhered to: a flexible tax system with regard to the oil and gas sector if prices for crude go up and providing economic incentives to develop reserves and resources that are hard to extract.
A new taxation system is proposed for offshore extraction of hydrocarbons (we propose collecting taxes on the extraction of subsoil resources depending on the complexity of the offshore project); and exempting offshore activities from the property tax and the value added tax, and exempting imported hydrocarbons from export duty and so on. Second, granting tax breaks on the subsoil resources extraction tax for difficult oil deposits. This oil is not being extracted today because of the high cost, and we should use tax policy to make investment profitable for the enterprises that are developing these fields.
Next is completing the development of a new formula for the taxation of gas extraction whereby the new tax rate will be determined by the price for gas on the domestic and foreign markets and some other parameters. All our proposals have been approved, and approaches to the taxation of the oil and gas sector have essentially been agreed at the meeting with Arkady Dvorkovich.
Anton Siluanov: "A draft law has been introduced in the State Duma that would zero the tax rate on companies’ profit owed to regional budgets during the first five years for investment projects worth 150 million roubles and more, and a 10% rate during the next five years of the investment project’s implementation."
Next is the tax on the immovable property of individuals. The guidelines would abolish the tax on the property of individuals and the land tax levied on them, and introduce a consolidated tax. The main task is to introduce this tax because the potential of the tax on the property of individuals for local budgets is substantial. But we see some problems that stem mainly from the need to provide tax agencies with a database of all the registered property of taxable properties and owners. We therefore propose passing the legislation for the new tax now, but introducing the tax gradually, starting with the regions that are ready for it. Some regions are ready now.
Taxation of luxury consumption is a separate issue. To address that task the Government has submitted to the State Duma a draft law that would increase taxes on the owners of luxury cars. It has already passed the first reading and it would introduce a differentiated transport tax for different kinds of vehicles depending on their cost.
Work continues on raising taxes on properties costing over 300 million roubles.
The next item we have included in the guidelines is self-declaration and having taxpayers calculate their tax liability themselves. At present taxpayers (individuals) pay property taxes – transport, land and property taxes – on the basis of a tax notification by the tax agency. Practice shows that in a number of cases data on taxable objects may not be in the tax agency’s database or may be incorrect, which entails changes and distortions in how tax liability is calculated. It would be helpful to consider the issue of having individuals themselves inform tax agencies of the taxable property they own. It is also possible to consider the principle of taxpayers calculating their own tax liability, which is also used in international practice. But this does not mean that the tax agencies should not send a tax notification to the taxpayer to pay the taxes owed.
Anton Siluanov: Excises on tobacco products have been growing rapidly in recent years, up to 40% a year. We propose to continue raising excise taxes on tobacco products at a high rate. In 2016 we propose to raise the tobacco excise by 28%.
Other taxes that provide budget revenue are excises on tobacco. Excises on tobacco products have been growing rapidly in recent years, up to 40% a year. We propose to continue raising excise taxes on tobacco products at a high rate. In 2016 we propose to raise the tobacco excise by 28%. However, we should hold talks with our partners – colleagues in Belarus and Kazakhstan – to coordinate the rate of excise growth so that excisable goods from these states do not enter our markets due to competitive advantages and lower taxes. By raising the tobacco excise we hope to achieve both a fiscal effect and to improve public health by reducing tobacco use.
An increase in excise taxes is planned for high-grade, eco-friendly petrol while preserving modernisation incentives for oil refineries and the difference between motor fuel of class five and below at the level of 4,000 roubles per tonne.
The annual increase in excise taxes on class 5 car petrol is expected to be up to 700 roubles per tonne, and for class 4, up to 500 roubles per tonne. We believe that this increase in excise taxes should not lead to higher petrol prices. This increase will allow us to collect money for the Road Fund and spend it on the road construction that we have planned for the next three years.
The next issue is insurance premiums to state extra-budgetary funds. It is proposed to extend the existing rate of insurance premiums (30%) plus collect another 10% from labour payments that exceed the amount subject to the 30% rate. This sum amounts to 568,000 roubles today. We are also suggesting a differentiated approach to insurance premiums paid by self-employed individuals depending on their income. We think that the issue of insurance premiums, the preservation of the existing rate and taxation level is a key task in the formation of the current tax burden.
Anton Siluanov: "We plan to sign agreements with offshore jurisdictions to promote the exchange of tax information and to counter tax evasion schemes. Such agreements will allow Russian tax authorities to take part in tax inspections abroad and reveal information about Russian tax residents with offshore assets and accounts."
The next subject is tailoring tax accounting to bookkeeping. The latter is primarily needed by shareholders and the former for paying taxes to the budget. Bookkeeping and tax accounting exist in the majority of foreign countries. The task is merely to prevent legislative differences between the rules of bookkeeping and tax accounting from forcing taxpayers to maintain two parallel accounting systems. The rules or calculating taxes should be based on bookkeeping, deviating from them only if need be. This will help taxpayers reduce their administrative overheads.
The Ministry of Finance and the Strategic Initiatives Agency have drafted a roadmap on improving tax administration, which reflects the aforementioned requirement. Experts are already working on the relevant draft laws. The first steps in this direction will be taken this year.
The next issue is offshore tax evasion. Almost all countries are fighting it. We plan to sign agreements with offshore jurisdictions to promote the exchange of tax information and to counter tax evasion schemes. Such agreements will allow Russian tax authorities to take part in tax inspections abroad and reveal information about Russian tax residents with offshore assets and accounts.
We support the initiative of the EU countries on signing agreements with offshore zones that would require the automatic release of information on bank accounts of Russian beneficiaries of different trusts, funds and other offshore companies.
We deem it necessary to support the OECD efforts to draft a multi-lateral international standard for the automatic exchange of tax information, which would provide for automatic sanctions against jurisdictions that violate the rules of transparency.
In addition, we are drafting a law on the taxation of profits of controlled foreign companies. Such anti-offshore laws exist in many countries. In accordance with the proposed standard, if a Russian firm or citizen controls an offshore company receiving passive income (interest rates, dividends and royalties) and does not transfer them to the owner, such offshore income should be subject to taxation in Russia.
Anton Siluanov: "The annual increase in excise taxes on class 5 car petrol is expected to be up to 700 roubles per tonne, and for class 4, up to 500 roubles per tonne. We believe that this increase in excise taxes should not lead to higher petrol prices."
In conclusion, I’d like to point out that in upgrading the tax system we want to facilitate tax collection, improve the quality of tax administration and reduce the shadow economy. Our tax system should remain competitive with those in foreign countries, while procedures for tax administration should be as comfortable as possible for bona fide taxpayers.
We will elaborate tax legislation on the basis of the current draft guidelines for tax policy in the near future. We plan to submit and endorse tax laws at the spring session of the State Duma. They will form the foundation for the 2014-2016 draft budget. Thank you for your attention.
Dmitry Medvedev: Thank you, Mr Siluanov.
Following the established tradition, let’s hear from Mr Pochinok (Alexander Pochinok, member of the Government Expert Council) who was invited to our meeting. And then we’ll have a discussion. Mr Pochinok, please go ahead.
Alexander Pochinok: Thank you very much. Mr Prime Minister, members of the Government, guests. The Expert Council has looked through this comprehensive, serious and well-balanced document. Thank you for taking many of our proposals and the proposals of businesspeople into account. There have been positive results. But a remark for the future: the next document should have a different structure and include the section “The Results of the Previous Year,” with a report on achievements and failures and an assessment of the activity. If we take a look at such documents for the last decade, we will see that there are advantages and disadvantages.
Second. We have negotiated with our neighbours for an excise tax on tobacco and have calculated the tax for oil products. The insurance rates are the most important issue, and our aim is to freeze them below 30%. Moreover, take note that insurance rates consist of two parts: pure tax and insurance payments, so we need to transfer the management of this to the Tax Service. But before doing so, we need to make a decision on pension reform, because it makes no sense to force the whole country to change their accounting records twice within a short period.
As for tax relief, I’m sure the Ministry of Economic Development will call for introducing new tax benefits. We can do that, but we need to review what has already been done in this regard. Let me remind you that amendments were introduced to the tax legislation every two weeks when the Tax Code was developing. There are many benefits that are outdated now, and it is necessary to transition from a vertical to a horizontal structure. A serious discussion is needed here.
I fully support the proposal on real estate tax. The first experiment was conducted 16 years ago and I think we should have approached this even more cautiously when introducing new regulations. Mr Siluanov says they should be introduced in certain regions. They can be adopted in the regions that are ready for it, but let’s begin with municipal entities, and let's do so very carefully, because, as [Jean-Baptiste] Colbert said, “the art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing." For instance, an old lady from Barvikha with a house the estimated price of which is 1 million, and who can’t sell it… this would be a scandal. So we need to make changes without doing any harm to certain categories of citizens. I’m just afraid that, just like in past years, regions will adopt standard regulations for all municipal entities, but there must be different ones even within Moscow, with regard to the budget, people’s incomes and so on.
There are issues that need to be worked on: we can finalise the decision on relief from withholding tax at the source (thanks to the Ministry of Finance, by the way, which did a great job on eurobonds).
There is a roadmap on the integration of tax reporting into the accounting procedure, but the roadmap does not look good. Currently 900,000 people in the country are engaged in tax accounting and submitting documents to the Tax Service. In fact, if we decided to transfer to IFRS, we can develop a joint procedure for tax accounting, bookkeeping and managerial accounting, and transition to self-taxation where possible, thereby saving a lot of time. We can do that within two years. The calculation shows that Russia’s tax rates are okay and the country holds a good position among the OECD member countries. But it’s still time consuming and complicated for a taxpayer, so we can ease the procedure and spare money without spending funds from the budget.
That’s all, I’m finished.
Dmitry Medvedev: Thank you, Mr Pochinok. Now the members of the Government may speak, but remember that we have already held several meetings on this issue. Just before this meeting, we discussed the tax policy. So there's no need to repeat what has already been said in my office.
Mr Dvorkovich (addressing Arkady Dvorkovich, Deputy Prime Minister), please go ahead.
Arkady Dvorkovich: Thank you. I’d like to confirm that we have resolved the main issues on oil and gas sector taxation at my meeting. In particular, a formula was approved for calculating the MET on gas to eliminate the risks for Gazprom and gas extracting companies. The question is, what decision can be made regarding gas prices for 2014-2015? Should the indexation of gas prices go slower that predicted (15%) and the new formula used, then the budget will incur losses. This should be taken into account when making the final decision.
Speaking of taking the interests of business into account and the adequacy of benefits: three issues remain unresolved on separate types of oil and gas fields. Businesses have raised those issues, but they and the ministries have not yet worked out a joint solution.
We have agreed that these issues will also be discussed as part of preparations for the second reading, thus already with the participation of State Duma deputies. Additional calculations are being made, and the final decision will be made. Meanwhile the draft laws can be submitted to the State Duma.
Dmitry Medvedev: Thank you, Mr Dvorkovich. Go ahead, colleagues.
Igor Shuvalov (First Deputy Prime Minister): Mr Medvedev, colleagues, since the participants of your meeting have made their decisions and you have asked us not to repeat same issues, I will just note the good performance by the Ministry of Finance and the Expert Council and the good work done on the Open Government platform.
After the meeting which you held, Mr Medvedev, where we discussed the main areas of tax policy with the expert community, all proposed taxes and tax amendments have been further discussed and adjusted.
Igor Shuvalov: In the coming years, we will not increase the tax burden either for individuals or for legal entities. However, there are taxes which we have agreed and warned the public in advance – that is the luxury tax <...>, excises and some changes in the extraction tax.
Most importantly, we confirm with this document what the Government declared a year ago: generally the tax burden will not increase. In the coming years, we will not increase the tax burden either for individuals or for legal entities. However, there are taxes which we have agreed and warned the public in advance – that is the luxury tax, mentioned by Mr Siluanov, excises and some changes in the extraction tax. But generally, as it was stated precisely a year ago, or as it was stated in the Policy Priorities of the Government to 2018, this document continues the main government documents, and therefore I ask you to support this.
Dmitry Medvedev: Thank you, Mr Shuvalov. Go ahead, please.
Oleg Savelyev (Deputy Minister of Economic Development): My name is Oleg Savelyev, from the Ministry of Economic Development.
The Ministry of Economic Development is particularly concerned about situation with increased insurance fees for small businesses. On January 1, 2013, insurance fees for individual, private business people doubled. As a result, over the last six months including last December, we lost 426,000 business people. Statistically, each of them created one additional job. Since they have not surfaced in the unemployment data, it means that they have entered the grey zone and simply stopped to pay taxes. The current federal law No. 212 establishes a 1.5-fold increase of insurance fees on small businesses operating primarily in production excluding retail beginning 2014. This provision on excluding retail refers only to the sale of medicines and pharmaceutics.
The Ministry of Economic Development proposes postponing this 1.5-fold increase of insurance fees for a year at least. It is necessary to look into those processes and the response that we expect from small businesses, at least for private business people. To this end it will be necessary to introduce an amendment to the federal law No. 212 with respect to postponing the timetable for increasing insurance fees on small businesses from 20% to 30%.
Dmitry Medvedev: Thank you. Go ahead, Mr Shmakov.
Mikhail Shmakov (Chairman of the Federation of Independent Trade Unions of Russia): Mr Medvedev, esteemed members of the Government, I’d like to raise a few concerns about the strategy currently being deliberated by the Government. First, I’d like to say that the Russian Trilateral Commission on Social and Labour Relations has not examined this document as yet – it will examine it tomorrow. And I want to draw your attention to the fact that various documents have been submitted to the Government meeting and have been included in the Russian Trilateral Commission materials. The materials presented to the Russian Trilateral Commission do not include section 1.7. However, this section is included in the Government meeting materials and it says that it is necessary to delegate collection of insurance fees to the Federal Tax Service.
I have to say that we made this mistake already when we introduced the unified social tax, and unfortunately the arguments we heard today from the expert community are somewhat beside the point. As a result, we decided against collection by the Federal Tax Service, because today – as well as a decade ago – the Federal Tax Service collected 89.7% of taxes in 2012, while the Social Insurance Fund collected 98.4% of these dues and the Pension Fund collected 98.7% which is much higher. When the Federal Tax Service deals with it, the results go down to the average indicators for Russia. Therefore, we should not do this.
Second, there is some confusion with the notions in this document. It says that insurance fees and their stabilisation or reduction is a decrease in the tax burden. But these are absolutely different concepts – insurance fees and tax revenues of the state. If insurance fees are a tax burden, then let’s include here civil liability insurance, life insurance and all other types of insurance. It is necessary to change the law on insurance – let’s call it taxes; and if this is insurance and not taxes, then it is not necessary to confuse the terminology. Every time reducing the tax burden is discussed, somebody recommends limiting insurance fees.
And I have some comments on insurance fees. We have seen various statements and proposals to maintain a 30% level of insurance fees, although it’s 34% under the law, and postponement all the time… Embracing a 34% total insurance fee means a deficit in the pension system, a deficit in medical insurance and a deficit in social insurance. Let’s decide where we are taking from. If the Government postpones this, then let’s allocate federal money additionally to these funds. If concessions are granted to small businesses or IT companies, it is necessary to elaborate who compensates these concessions – or say that these employees and businessmen will get incomplete pensions, partial coverage of sick leave and so on. Otherwise it makes no sense to transition to or go back to insurance-based social security. Not to mention the fact that we have never established an unemployment insurance fund.
I would like to draw your attention to one point: when we were adopting the not very good law on smoking restrictions, many said that it didn't entail or set out any fiscal burden. It was all about preserving the health of the population. Here in this document and in the tax policy priorities- it’s already in the section “On Increasing State Revenues” (actually the name for it is slightly different) - we can see that there is a point about the increased proceeds that should come in. It states that … It has already been said that excise duties on tobacco are to be increased by 28%, and there are references to the World Health Organisation. In Geneva, next door to the WHO there is also the International Labour Organisation. Statistics provided by the ILO show that the average salary in Europe, talking about the European region, is about 3,500 euros (140,000 roubles) a month. The average salary in Russia is 27,000 roubles, while the median salary – the real salary most of the working population receives – is just 17,000 roubles. So when we are trying to come up to European standards, that's all well and good, but we should also seek to come up to European standards of pay and the situation when the wage fund makes up 50% to 60% of the gross domestic product in these countries, not 23% as is the case in Russia. Other documents being drafted for next year and the three years following set out an increase of just over 5% for salaries in Russia. There are, therefore, large gaps. So let us close them either in one place or another.
And the final point, Mr Medvedev. Tomorrow the Russian Trilateral Commission will be meeting to examine this issue. I would like to request that the Minister or Deputy Minister responsible for this sector should be present at the Government meeting and report on the subject, not some deputy head from some Ministry department.
Dmitry Medvedev: Thank you. Mr Makarov, over to you.
Andrei Makarov (Chairman of the State Duma Committee on Budget and Taxes): Thank you very much, Mr Medvedev, for this opportunity to speak. I would like to do something I have never done before: to thank you and the Government’s economic team for the close attention paid by the Government to the recommendations of the parliamentary hearings during these meetings. The document has no doubt improved greatly. I believe further discussions will be held when the State Duma discusses the bills. No matter how critical the comments, we are working together. And so two brief proposals, rather than remarks.
I would like to support the proposal by the Open Government that since the basic tax policy guidelines are no doubt the main part of the social contract, perhaps it would make sense to start the discussion on them not during the May holidays two weeks before the Government meets, but sometime in February. Then they would be understandable to anyone who in one way or another makes use of them.
And a brief remark to end on. A lot of good things have been said about the need to improve tax administration. With tax inspectors earning 10,000 to 13,000 roubles a month in the regions, which is below the regional average, it seems to me this will be difficult to achieve. I think that in the budget we are going to draft and consider in the coming year, we need to deal with issues connected with tax service incentives.
Once more I would like to express my thanks for the close attention paid to the remarks of parliament.
Dmitry Medvedev: Thank you very much. Now let us give the head of the tax service a chance to speak.
Mikhail Mishustin (Head of the Federal Tax Service): Mr Medvedev, Members of Government. Just one remark about the rate of tax collections: the 89% (quoted by one of my colleagues) is not quite right. For one thing, these figures are quoted with appropriate dates, surcharges and penalties. In terms of effectiveness the collection of the unified social tax (I was at the time, Mr Medvedev, Deputy Tax Minister and was responsible for delegating these tasks) has increased considerably in real terms and was 11% higher in the first year and went up each year. But that is not the point, we are not discussing the effectiveness of administration but the functions of the tax service: technically they are clear. What remains are issues that have to be solved by the appropriate decisions.
A couple of words about administration. Over the past three years we have made good progress in increasing efficiency in this area. In terms of tax administration growth, real taxes have increased by 21% over the past three years, a GDP growth - 12.7%. Accordingly, a number of specialised institutions we introduced, in particular the mandatory pretrial settlement of tax disputes, and the tax inspections we carried out have led to a sharp decline in the load on the judicial system. In particular, the number of complaints over the past three years has dropped by 28%, (from 70,000 to 50,000), while the number of cases has more than halved, according to the Supreme Arbitration Court.
Another couple of words about property tax. The discussion concerned an appropriate database and the possible introduction of this tax (phase by phase) in the regions (the Minister has already spoken about this), where it’s possible.
Here we have three key issues. The first concerns the quality of assessment which should satisfy all those who have to pay this tax. The second refers to linking the legal entity with a quality property and providing error-free data to enable the tax service to properly send the appropriate notice to the addressee and do so on time. The third point covers all terms and conditions, including benefits for those not paying the tax at the municipal level – it is there that the appropriate decisions will be taken. In tax administration terms, Mr Medvedev, we are willing and ready to introduce such a tax.
In conclusion, a few words about the introduction of modern interactive services, which we are actively doing. There are 35 of them, and all of them are available on the website as Government services. Over the past six months (I reported to you at the meeting), we have done much to introduce personal accounts so people can see what the Government knows about them, calmly accept the charges levied and pay their taxes via online banking or in other modern ways. This is a very important form of contact, which firstly is convenient for people, protects their data and gives them the ability to fulfill their obligations and pay the taxes that are due.
Dmitry Medvedev: Thank you. Now, please be brief.
Mikhail Sokolov: By way of an aside, Mr Medvedev. I understand that we have already discussed all the main issues. In his report, the Minister of Finance has noted that these decisions make it possible to fill the road funds. Therefore I would like to draw attention to the fact that we are still unable to reach the preset targets. The federal road fund posts an annual deficit of about 15 billion roubles. For their part, regional road funds have accumulated a much more substantial deficit of over 100 billion roubles during three years. Moreover, Russian regions annually lack about 100 billion to double the roads over the next decade. This is why we must search for other sources making it possible to accomplish these objectives. Thank you.
Dmitry Medvedev: Thank you. Please.
Veronika Skvortsova: Mr Medvedev, because the Ministry of Healthcare is a co-executor of the World Health Organisation’s Framework Convention on Tobacco Control and the national anti-tobacco concept, we would very much like to ask you to include us on the list of the co-executors for the stage of its finalization. This is also because the World Health Organisation Regional Office for Europe has decided that the Russian Office shall fulfill a sub-regional function. Currently, the Russian Office oversees the implementation of anti-tobacco programmes in post-Soviet countries. We are very eager for this to happen, because the relevant document statistics will not allow us to achieve specific targets stipulated by the national policy and by international documents for 2015. It is possible to find a compromise. Otherwise we will lag two times behind European levels and behind Romania and Bulgaria, which are at the lowest …
Dmitry Medvedev: What figures are you referring to?
Veronika Skvortsova: I am talking about anti-tobacco excise taxes.
Dmitry Medvedev: Do you think that we need higher excise-tax levels?
Veronika Skvortsova: Yes, because the relevant target is 1,600 roubles per 1,000 cigarettes in 2015.
Dmitry Medvedev: Is this your reply to Mr Shmakov?
Veronika Skvortsova: Yes.
Dmitry Medvedev: I see. We have heard a female perspective, the Minister of Healthcare's perspective, and the trade unions' perspective on this issue. All right, let’s finish the discussion.
First, I would like to say that the document was finalised rather seriously. Nevertheless, I have just chaired a meeting, and I have drawn the attention of our colleagues to essential aspects that are needed to ensure the best possible mutual propriety during the finalisation of these serious documents, and to submit their final versions to those responsible for preparations. We have faced certain problems here. Incidentally, Mr Shmakov (Mikhail Shmakov) has pointed out this aspect. I believe that this is fair, and that departments and ministries should show more consideration for each other. Sometimes this happens here between us.
And now I would like to say a few words about specific proposals that have been made here. I liked the idea that Mr Pochinok brought up. He said that the next document should include a section on the results of fulfilling the relevant document of the previous period. I believe that this makes perfect sense, that this is in line with our current practical work, which includes efforts to monitor the fulfillment of these decisions. I believe that we can approve this. The transfer of administrative functions from the pension system to the Federal Tax Service has been cause for discussion. This is certainly a controversial issue, and we debated this issue beforehand. In reality, different decisions are possible. It has been correctly noted that Russia and the world have implemented various options, one way or another, as we have found out. There is no decision currently being made, but I would like to remind you that I recently issued an instruction to analyse all the pros and cons of this option. Apart from authorised departments, including the Pension Fund, the Federal Tax Service and other officials responsible for this issue, I would like experts and representatives of our trade union organisations to take part in discussing this option. They should also lay out their stance.
I will not comment on tobacco excise-tax volumes, because everything depends on our priorities. Saving revenues is one priority, and preserving health is another priority. In effect, a global discrepancy in this area has now emerged. And I don’t think that the stances of the World Health Organisation and the International Labour Organisation are very different here.
I support what Mr Shmakov has said about inviting authorised departmental representatives to attend subsequent discussions at meetings of the Russian Trilateral Commission on the Regulation of Social and Labour Relations. It is important that authorised persons – not just people who are merely attending and will not voice any stance – should take part in the meetings. However, the Government must, naturally, defend its position, which has been formulated in the agenda and in the draft tax-policy priorities, rather actively during these events. When we adopt this decision, it becomes a Government decision.
And, finally, I would like to note that we will, nonetheless, proceed from the need to preserve current taxation levels, and in line with specific nuances that were mentioned by Mr Shuvalov. This includes super-consumption taxes, which should already be introduced, and some other nuances, which, nonetheless, do not shake our overall approaches towards the tax system. Although any tax system is criticised and will be criticised, its current advantage lies in the fact that this system is quite stable. This also concerns the issue of insurance premium payments. Right now, I will not discuss the nature of premiums and specific benefits and privileges. Our colleagues have prepared well, and I believe that this was also done with the help of Government members. Nevertheless, we should send clear signals as to what taxes Russian citizens and companies have to pay. And, on the whole, we must proceed from a stable tax regime, which is the only option that can be supported. Thank you. The decision has been made.
The next issue deals with the planned activities of federal executive bodies. I would now like to ask the Ministers to speak, for not more than three minutes each. Let’s start with the Minister of Education and Science. After that, I will ask our Deputy Prime Ministers who oversee the relevant activities to make some remarks.
Mr Livanov, you have the floor.
Dmitry Livanov: Mr Medvedev, colleagues. The plan of our work in 2013-2018 contains 13 goals and 56 key events reflecting the main measures of the state programmes, Education Development, 2013-2020 and Science and Technology Development, with due account for the May 2013 Presidential Executive Orders and the December 29, 2012 Presidential Executive Order on Measures to Implement the State Policy to Protect the Rights of Orphaned Children. I would like to talk about a few of our main goals. Our first goal is to ensure 100% affordability of pre-school education for children between the ages of three and seven by 2016.
By the end of the current year at least 200,000 new places will be available in state and municipal preschool educational institutions, and 50,000 more places will be provided in other types of preschool establishments. By 2016, when we will have introduced more than 1.2 million new places at preschools, this level of education will be fully available to our citizens.
Our common objective in education is for Russian school students to achieve high educational results. Since 2011, we have been introducing a new federal state educational standard for primary schools. From 2015, a similar standard will be introduced for secondary schools, and from 2020 for high schools. As a result, the number of Russian school students who achieve a high or a basic level of educational results will increase in international comparative studies of education quality. The primary objective is to create an effective system for teaching children and young people. In 2013, 350,000 more children will be offered additional education programmes, and by 2018 up to 1.5 million more children and young people (plus to the current level) will be involved in these programmes.
A major objective in professional education is to make vocational education institutions fit with the society’s and economy’s requirements in terms of quality education and qualified staff. The programme for restructuring universities that are performing poorly will be implemented. This year, more than 250 university affiliates and nearly 30 higher education institutions will be restructured. Programmes will get underway to improve the performance of 71 universities and 133 affiliates. This work will be completed by 2016. Centres of practical skills will be available, as well as organisations that provide retraining and improve the professional level of employees. The objective is to supply our economy with highly-qualified personnel.
Another major objective is to make Russian universities globally competitive and have at least five among the top hundred leading world universities in global rankings.
Regarding orphans and children left without parental care, we will give at least 50,000 a home with Russian families in 2013, leaving a maximum of 100,000 in children’s homes – this will be the lowest number in ten years. Over the next few years, the number should reduce annually by a minimum of 20,000.
Our goals in academia include a forward-looking human resources policy, a reduction in the average age of researchers and increasing research funding possibilities via competition. As a result, Russian academics will be more actively involved in publishing work and patent activities. In 2013, the number of publications by Russian authors on the Web of Science academic citation index will grow to 35,000, and by 2018 to at least 43,000 articles. The infrastructure of academic research will develop, as well as the centres of collective use of research facilities, including world class ones. These structural changes will be followed by introducing an effective contract and increasing salaries for preschool, secondary school, secondary and higher vocational education teachers, and researchers at state and municipal institutions.
We will continue the policy of information transparency, which includes regularly holding public discussions on the execution and results of our work. Thank you for your time.
Dmitry Medvedev: I think the last thing you said is the most important. What you spoke of are the ministry’s plans. And we must see to their execution.
Who is next, please? Ms Skvortsova, very briefly. You don’t have to list everything you are going to do, just the main aspects.
Veronika Skvortsova: Thanks very much. Mr Medvedev, colleagues. In the Ministry of Healthcare’s plan all the objectives are grouped into six sections which correspond to the main areas of development of healthcare in Russia. The first objective is to achieve health targets and the expected life span in Russia. The main areas here include promoting a healthy life style, preventing non-infectious and infectious diseases, implementing measures to improve the quality and accessibility of medical aid, improving the health of mothers and children, and improving medicine provision via the newly adopted strategy for drugs provision.
The second objective is to make the system for rendering medical aid more effective by improving the work of medical organisations. Work towards this goal will be conducted based on the approved road map. Our primary objective is to compare the level of salaries of medical personnel with the quality of medical aid provided. When we obtain the results, we must view both sides of the problem.
The third objective is to provide highly-skilled specialists via implementing our adopted set of measures and 83 regional human resources programmes. Our main tasks in this area include the improvement of planning and better use of personnel resources, improvement of specialist training, and establishing and developing the system of material and moral incentives.
The fourth aim is innovative development of the healthcare sector, biomedicine and medical science. Efforts to achieve this will be part of the approved strategy of medical science development on the basis of those 14 platforms defining the most vital areas in biomedicine. The introduction of changes in the programme and target financing of scientific research will be accompanied by new state orders for medical institutions.
The fifth aim is to establish a unified state information system in the healthcare sector. By 2018, 95% of citizens will have an electronic medical record card, and 100% of medical institutions will be connected to the unified e-medicine healthcare service system.
Finally, the sixth aim is to ensure the Ministry’s work is transparent, develop close ties with the professional community and civil society and implement all planned measures. Thank you very much.
Dmitry Medvedev: Thank you. Mr Slyunyayev, go ahead please.
Igor Slyunyayev: Mr Medvedev, colleagues, we have set 20 targets within our policy priorities. I will speak briefly about the goals and plans for their implementation.
Establishing a comprehensive system of strategic planning is our main priority. In the next five years, we will develop concepts for regional policy, a strategy for Russia’s spatial development, which will include a housing plan and a plan to set up new industries, a program for agglomeration development, an area planning scheme for border territories, as well as a state development programme for the Arctic zone. This year, we will finalise the work on approving the territorial planning documents. Three sector-related plans have already been completed for education, healthcare and transport, and another two – for the energy industry, national security and defence – are almost ready. The territorial planning scheme has been approved by 82 regions, and 70% of local government bodies have drafted supporting documents. We also have to improve our decision-making procedure, and the new state information system of territorial planning will help us in this.
The Ministry of Regional Development is the body responsible for two programmes for social and economic development, in the North Caucasus Federal District and the Kaliningrad Region. The aim is to make these territories new areas of economic growth and provide a high quality of life. One of the major tasks is the development of local government. Other key goals are to increase the fiscal capacity of municipal budgets, reduce the personnel deficit and improve the management system. We have a vast amount of work to do here by 2018.
We must ensure support for single-industry towns. We are improving investment plans and complex investment plans. We are also going to develop conditions for attracting investment and providing assistance in the diversification of the economies of single-industry towns. This year, we will continue improving the system of assessment of the effectiveness of regional public authorities. The final report will be made on September 1.
Igor Slyunyaev: Establishing a comprehensive system of strategic planning is our main priority. In the next five years, we will develop concepts for regional policy, a strategy for Russia’s spatial development, which will include a housing plan and a plan to set up new industries, a program for agglomeration development, an area planning scheme for border territories, as well as a state development programme for the Arctic zone.
As regards inter-ethnic relations, we have a vast number of guidelines to approve, such as an action plan to implement the Strategy for State National Policy, to develop and approve the federal targeted programme Strengthening the Unity of the Russian Nation, a targeted programme for the development of the Solovetsky Islands, and 40 regional programmes for supporting the voluntary relocation of our compatriots.
We have a vast array of issues to be solved in the construction industry and the housing and utilities sector. To decrease the cost of housing, we have to reduce administrative barriers in the construction sector, create conditions for standard building projects, provide an impetus for the development of the construction materials industry, and improve the system of price formation and normative and technical regulations. We will continue deregulating the land market, including municipal and regional land. We will also commence the Five for Five project under the Affordable Housing government programme.
We will also be working to expand new and successful practices, including housing savings co-operatives, a scheme which has been implemented in the Belgorod Region to good effect.
All aims and tasks are laid out within the road map, with a definite list of measures, set time periods, and responsible parties for the implementation of these measures. Thank you for your attention.
Dmitry Medvedev: Thank you.
These are three examples of our colleagues’ work. First, I would like to say that the ministries are not the only ones working here. Under each ministry – just as with the Government – are other executive bodies, such as services and agencies. The work of these bodies has to be included in the summary plan. I think this is obvious to all ministers present here.
Now, I give the floor to the deputy prime ministers for their comments. Mr Dvorkovich, go ahead please.
Arkady Dvorkovich: Thank you. I have just a few words. First, the plans have been developed by all ministries. At this point, 15 ministry plans and 12 plans for services and agencies that are subordinate directly to the Government have been submitted to the Government. Although the other ministries must submit their action plans to the President directly, it is up to the Government to coordinate them between themselves before the deadline. On the whole, the plans comply with the standard formats that you have approved and take into consideration the President’s executive orders and other Government priorities. All in all, we are monitoring work on 129 presidential orders, while the plans set about 230 goals. About a half of them concern presidential orders directly, while the others have to do with other essential fields of Government activities. These goals include 1,679 crucial targets whose implementation is connected with the attainment of the basic goals. These targets have different statuses. Some concern draft laws and bylaws and others are specific practical projects. In fact, the Government has to tackle an event a day. I think that this is too much – one gets the impression that the Government’s priorities are vague. I suppose that we should cut the number of our key goals three- to four-fold to place greater emphasis on Government priorities in general, so as to tackle an assignment a week, not a day.
Dmitry Medvedev: You mean that we should integrate our targets?
Arkady Dvorkovich: Yes, and possibly we should remove some points and place them in supplements. For instance, when we come to the Ministry of Transport, it would be more reasonable to place exhaustive lists of federal motorways or seaports for construction in detailed supplements rather than the list of key plan targets.
As for the new expenditure commitments, our task is to avoid them within the framework of our plans. As far as we can judge from preliminary analyses, not all of the ministries are coping. In particular, this concerns the Ministry of Regional Development. We can say the same about compliance with the earlier appointed deadlines. We must check this compliance within the few days that are left. The heads of governing bodies are personally responsible for the implementation of the plans, and their deputies (are personally responsible) for particular items.
As you said, we must guarantee the public and the expert monitoring of plan implementation. The plans will be made public after June 7, the date of the relevant meeting chaired by the President – to be more precise, from June 8 to 15.
Last but not least, the plans must be submitted to the President no later than June 4, and we must guarantee that their final improvements will be coordinated by the deputy prime ministers involved. Please make the necessary orders.
Dmitry Medvedev: You should work more quickly. Don’t forget that June 7 is the deadline. Mr Shuvalov has the floor.
Igor Shuvalov: Mr Prime Minister! Ladies and gentlemen,
The President has ordered to finish the job by June 7, and the Government will discuss the matter during its meeting on June 6. Thus, we should analyse it at the Government meeting before we submit the documents to the Presidential Executive Office and the President himself for discussion at the meeting.
We have all of the fundamental documents for the ministries to cope with the job – there are presidential executive orders, guidelines for Government work, and federal programmes, which matter most. Mr Medvedev, we only regret that the documents drawn up by the ministries are of a different quality. Some are well made while others leave ample room for progress.
We discussed with experts that – in the final analysis – a document should be drawn up not only for the Presidential Executive Office but for the entire nation. There is an idea to enlarge the documents drawn up by the ministries with annual change indices concerning the quality of life for five years in terms of healthcare, education and other services essential for the people in the street and businesspeople.
I mean that Government efforts will be expressed through explicit figures by specifying not only the number of institutions to be built but also the terms of waiting for accommodations there – for instance, how long a child will be on the kindergarten waiting list in a year and in three years. If it is possible to put an end to waiting lists in five years, then we should make it an obligation to do so. If not, we must acknowledge that a short time will be spent on the list, however hard we try to avoid it.
This concerns fiscal management, among other things, in the offices that I supervise – the Ministry of Finance and the Ministry of Economic Development. We discussed expected changes to individual and corporate taxation. We should show well beforehand how the management will change from year to year. We should also show the prospects for property rights registration – that is, how the Federal Service of State Registration, Inventory and Cartography (Rosreestr) will work, what the current registration procedure is and how it will change with time, and how company registration will change.
I approve Mr Dvorkovich’s idea of integrating these indices and adding to the work that we have done changes to the quality of life of particular institutions.
As for agencies working for and under the Government, we divide responsibility for them among the deputy prime ministers. Mr Dvorkovich, for one, is responsible for the Federal Service for Alcohol Market Regulation and some others, while I supervise the Federal Migration Service, the Federal Customs Service, and the Federal Antimonopoly Service, to name three. They all need a system of indices of their own. I think that we need a mere week to cope with the job, and we will discuss the results at the Government meeting. Thank you.
Dmitry Medvedev: Thank you, Mr Shuvalov. Ladies and gentlemen, we must meet all of our deadlines and do our job well, so that we will not be ashamed of it later. After all, it does not concern accounting but rather meeting the national goals that we all share. So, finish your job and submit everything for consideration. Agreed?
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Minister of Finance Anton Siluanov answers journalists’ questions after Government meeting
Question: Mr Siluanov, what has the Government decided in terms of the first issue? Has it approved the programme or returned it for improvement and coordination?
Anton Siluanov: It is not a programme, but rather it is guidelines for the 2014-2016 tax policy. The Government has approved the document, on the whole. We have agreed that a number of improvements should be made before we submit the final version to the Government. But on the whole, the document has been approved.
Question: When will the final version be submitted?
Anton Siluanov: I think that it will take us a couple of weeks.
Question: Could you speak about taxes on Eurobond yield payments? You said that the Ministry of Finance has proposed abolishing them. Which of the two proposed decisions will be approved?
Anton Siluanov: Why two? There is only one variant in the document. It states that the organisation issuing Eurobonds is a tax payee, and that we will free it of its function as a tax payee. All taxation issues will be regulated in accordance with the legislation of the home country of the Eurobond holder. If he or she is a Russian national, they will pay taxes on Eurobond yield payments in accordance with Russian legislation. You know, we spent a long time discussing this issue with our experts and bankers. It was their proposal, which we supported.
Question: So Eurobond yield payments will not be taxable?
Anton Siluanov: We propose lifting the function of the tax payee from Eurobond issuers, which they had in the past. Now an organisation that issues Eurobonds will not collect taxes from bondholders when making coupon payments, which has been a contentious issue. Banks and other organisations that issued Eurobonds were obliged to collect taxes. They are not doing so now because we have a moratorium on this until mid-2014. What we have decided now is that these organisations will not be tax payees after 2014; they will not collect taxes from Eurobond yield payments.
Question: Has the Government supported this proposal?
Anton Siluanov: We discussed it for a long time, checking everything. We have not held a separate discussion on this issue today. Alexander Pochinok, who spoke on behalf of businesspeople, supported the idea. He said that it is a sound decision.
Question: So, is this the final decision?
Anton Siluanov: Yes, I think so. We are trying to meet halfway the organisations that make transactions on the financial market. Allow me to repeat – it is our responsibility to make the Russian financial market attractive to investors, including foreign investors, with a comfortable level of taxation and also organised operation. We are open to continuing to perfect our tax laws, so as to make the Russian financial market as attractive as the financial markets in other countries.
Question: What information disclosure requirements will beneficiaries face? You were planning to work out some requirements.
Anton Siluanov: Do you mean the requirements for companies registered in tax havens?
Remark: No. I am referring to Eurobonds.
Anton Siluanov: The requirements for Eurobond holders state that if a holder is registered in an offshore jurisdiction that has not signed an agreement with Russia on avoiding double taxation – there is a list of such jurisdictions – the company will be required to pay a tax. As for other Eurobond holders registered in a bona fide and transparent jurisdiction that has signed the agreement the tax agent should not tax the income on these Eurobonds.
Question: As we understood from the discussion that we just heard, you still do not agree in terms of the excise tax rates on tobacco and petrol because the ministers responsible for these industries are both… Calls were made to raise the tobacco excise tax higher than you have proposed, and as for the petrol discussion, the Ministry of Transport said that this income will still not suffice, and their estimates regarding the potential shortfall of income did not match yours. Have you reached any agreement this time around?
Anton Siluanov: This is indeed a sensitive issue. However, we held a Government meeting on excise taxes today before bringing it up here.
With tobacco, we just heard two opposite views – the trade unions said that we should be very careful about raising the tobacco excise tax, while the Minister of Healthcare insisted that we should raise it more quickly. Our position is actually somewhere in the middle, although I must admit that tobacco taxes have been climbing at a high rate of up to 40% a year.
We have discussed plans for 2016, and an initial 10% increase was proposed. However, after a discussion in the Government, we decided to raise the tax higher. Finally, the Ministry of Finance proposed a 28% increase, which was approved by the other ministries concerned. It is also important that our neighbours raised their excise taxes, too.
As is, Russia has seen an inflow of tobacco from Kazakhstan and Belarus. Just look at the following figures – with the local excise taxes significantly lower than in Russia, importing one trailer of products fetches around $1 million in profits. Can you imagine this? Half of all of the tobacco goods sold in the border areas have no Russian excise stamps on them.
I think that our watchdogs responsible for the consumer market – for products being certified and legal – should make a stronger effort to eliminate products without Russian stamps from the market.
Question: What is the decision regarding social security contributions for small businesses?
Anton Siluanov: Social security contributions will remain at their current level for now. No changes are planned in the near future.
Question: And for small businesses?
Anton Siluanov: For small businesses, I should remind you that we have a pension system development strategy that does not allow us to extend existing benefits.
Yet, the Ministry of Economic Development has asked if the social security contributions of small businesses could be considered as a separate issue today. We will probably do so, but it is still our belief that everyone should contribute to his or her pension.
If small businesses do not pay as much as everyone else, then this means that someone else has to pay for them. Is that fair? I do not think so. Our strategy was to grant them a temporary privilege, and that privilege is expiring. We have heard a proposal today to extend it for another year. But I do not think that one year will make a difference, except for leading to the resumption of this discussion one year from now.
They will then ask to extend it for another year, and then for another, and so on and so forth, indefinitely… Thus, we have not included policy changes in these guidelines. The Ministry of Economic Development has raised this issue today. We will probably meet to discuss this issue once again, but we have not included any special decision in the guidelines.