Agenda: sending children from the Belgorod and Orenburg regions to recreation facilities during summer holidays, support for agriculture and food production, the results of executing the federal budget, state programmes and state funds in 2023, making changes to the three-year budget, and amending tax laws.
Mikhail Mishustin’s opening remarks
Finance Minister Anton Siluanov’s report on proposed changes to tax legislation
Excerpts from the transcript:
Government meeting
Mikhail Mishustin: Good afternoon, colleagues.
Before turning to our agenda, I would like to talk about a few decisions the Government has made.
At a recent meeting, the President instructed us to focus on helping families with children in the regions where the situation is most difficult and, specifically, to discuss arrangements for these children’s recreation in summer with the heads of these regions.
The Orenburg and Belgorod regions are most in need of help at the moment.
We are going to allocate over 1.1 billion roubles to pay for the children’s vacations at summer camps and health resorts in Crimea and the Krasnodar Territory. This will be enough to send almost 22,500 children there to have a good rest and gain strength.
Taking care of children is always a priority in the Government’s work.
Mr Siluanov (addressing Finance Minister Anton Siluanov), the summer holidays have already begun, so we need to promptly direct the funding to the regions so that they can send the children to their holiday destinations.
I would like to mention one more document. The Government continues to make efforts to attract investment to agriculture and food production.
As the President noted, we have significantly increased government support for agriculture over the past year.
Moreover, we design our support tools in view of the economic situation, and, if needed, we adjust them and provide additional assistance to specific segments that require modernisation and re-equipment.
A resolution has been signed adjusting the mechanism for granting subsidies to the industry. Funding will be allocated from the consolidated budget to partially reimburse the investor for the cost of building and modernising the necessary facilities such as fruit storage systems, dairy farms, sheep breeding farms, baby food plants, and additional lines for the production of feed for aquaculture.
The partial reimbursement of these costs should not only reduce the payback period of new projects, but also accelerate the introduction of new technologies. These factors are taken into account when calculating the subsidy amounts.
Breeding centres are also eligible for state support, including scientific research centres for seed breeding, viticulture, and poultry farming.
Wholesale distribution companies in Crimea and Sevastopol are also entitled to subsidies.
We trust that the decisions taken will help boost agricultural processing and increase the supply of high-quality food products that customers need to the domestic market.
Now let’s go to the agenda. Today, we have a big package of budgetary issues. We will discuss, among other things, the results of implementing the country’s main financial law last year.
Overall, the final figures on revenues and expenses corresponded to the positive changes that took place in the Russian Federation. Owing to the implementation of the President’s instructions and active work of the Government, regions and businesses, the GDP increased by 3.6 percent in 2023. The output was dynamically expanding in many sectors. This increased our revenues. They substantially exceeded the figures that were laid down in the law on a three-year budget – almost by 3 trillion roubles – and amounted to over 29.124 trillion roubles.
It became possible to increase spending – approximately to 32.350 trillion roubles. Combined with the further consolidation of fiscal discipline, this allowed us to provide financial support for a bigger number of projects that are important for our country and millions of our citizens. We channeled additional resources to healthcare, education, the creation of an accessible environment, provision of comfortable housing and utilities, economic development, the development of the innovative economy and more technological projects.
We also increased the funding of national projects and the comprehensive plan for the modernisation and expansion of the core infrastructure.
Despite the growth of expenses, the federal budget deficit was somewhat below the planned level –1.9 percent of the GDP. The national debt remained in a service-friendly range.
Today, we will also sum up the results of implementing state programmes last year. All of them combine mechanisms for achieving national strategic goals of developing the country and its economic, scientific and cultural potential. They are aimed at improving the living standards, starting from support for healthcare and education, large families, the most vulnerable categories of people to the construction of housing and roads.
In turn, the efficiency is determined by specific results and quality of financial management. During the past year, this figure exceeded 94 percent on the average.
Every sixth out of 50 state programmes has been fulfilled by over 99 percent.
Importantly, two of them reached the maximum level. This applies, in part, to the comprehensive development of rural territories, about which deputies always talk to us during our meetings with State Duma representatives. This programme directly concerns the key area of national food security. This is a very good trend.
It is important to continue improving the best practices of governance so that all the tasks set by the President in his Address to the Federal Assembly for the next six years are fully accomplished.
One more issue is about the execution of budget of the state funds last year.
All social commitments to the population have been fulfilled. The Social Fund paid pensions that have been adjusted for inflation, all types of insurance premiums and allowances for families with children. This also applies to the new allowance for the birth and upbringing of a child that was introduced in the beginning of the past year. It is paid every month to parents in need of social support. Such allowances were received for almost 11 million children.
About a million certificates were issued to families under the maternity capital programme.
The Compulsory Medical Insurance Fund paid for free medical assistance throughout the country. Over 2.7 trillion roubles were forwarded to regional medical institutions. This funding made it possible to cover an additional 23 million people with medical exams and preventive checkups and increase medical assistance for dispensary observation and rehabilitation by 25 percent. The provision of specialised and high-tech care in federal hospitals went up by almost 20 percent, including with the use of the most advanced unique technologies.
The fund allocated over 30 billion roubles for the growth of wages and salaries of medical workers.
It is important to make sure that in the future all funds required for fulfilling social commitments should also be granted in full and on time.
Colleagues,
We will review the amendments to the current three-year budget today primarily as part of our efforts to implement the Presidential Address to the Federal Assembly. We will allocate resources to pay monthly bonuses to homeroom teachers. The decision to increase the bonus size became effective on March 1, and the bonus is payable to about 540,000 teachers. We will also use these resources to increase the salaries of the fundamental discipline teachers in order to raise the standing of this occupation and to expand their participation in scientific research. Also, these resources will be used to pay monthly bonuses to general and vocational school director advisers in charge of education starting September 1. As many as 37,000 employees are eligible for these bonuses.
We will also set aside funds to expand access to broadband internet.
Performing assignments issued by the President or the Government, including the provision of monthly payments to war veterans and subsidies to the utilities companies in the new regions, is the second important area.
The third one includes transferring two-thirds of the Russian regions’ debt under budget loans from this year to the next year. That includes write-offs.
We will also review the amended Budget Code and Tax Code. In his Address to the Federal Assembly, the President set a number of system-wide goals which must be achieved, among other things, through the launch of revised and newly adopted national social and technological projects.
The Russian economy has been growing dynamically since earlier this year. According to Rosstat’s preliminary estimates, the gross domestic product grew by 5.4 percent in the first quarter. The January-April industrial output dynamics stand at 5.2 percent.
It is crucial to maintain this momentum. By the way, the growth rates have remained strong despite last year’s high baseline. Forming and allocating additional resources in order to advance the country’s socioeconomic growth are part of our agenda. That includes supporting families with children, repairing and outfitting outpatient clinics and hospitals with advanced equipment, building kindergartens and schools, upgrading colleges and universities, extending maternity capital payments, and much more. Without a doubt, it also includes implementing promising industrial projects and, more broadly, strengthening technological sovereignty.
Building a fairer taxation system is a major prerequisite for ensuring proper implementation of these and other measures. The preparations have been implemented in full. As you may be aware, a broad-based public discussion with the participation of the representatives from the expert, scientific and business communities took place in the State Duma, following which it submitted to the Government its specific recommendations concerning the key tax amendments.
Most of them had been taken into account before the draft law was submitted to the Government. Among them a proposal to use double the amount of average nationwide wages to determine the initial amount taxed at a graduated rate. Individual incomes in excess of the initial amount will be taxed at a higher tax rate. The Government decided to increase the recommended amount to 200,000 roubles meaning that changes will affect only 3 percent of the gainfully employed population with truly higher incomes.
Finance Minister Anton Siluanov will tell us more about the proposed changes.
Please go ahead, Mr Siluanov.
Anton Siluanov: Mr Mishustin, colleagues,
The Ministry of Finance has submitted a package of draft laws for the Government’s consideration, which includes amendments to the tax legislation, the Budget Code, as well as amendments to the federal budget for the current three-year period.
The adoption of these amendments will make it possible to implement the President’s instructions to the Government from the Address to the Federal Assembly, as well as provide the necessary finances for this.
Let me elaborate on each draft law.
The first and foremost, as you have already said, Mr Mishustin, is the amendments to the Tax Code of the Russian Federation. A lot of work has been done together with the State Duma, business associations, the expert community, associations of trade unions, employers, as well as with the regions of the Russian Federation. I will outline the principles that guided us when preparing tax innovations. These principles were approved and supported by the expert community and our partners.
Justice, stability and predictability of the tax system are the main principles. Second, the encouragement of companies’ investment activities, and third, redistribution of resources to address issues in the social and economic spheres, because through tax changes we thereby concentrate resources on the most important, essential tasks of the state. Fourth is the creation of equal conditions for competition.
I will get down to specific parameters of the tax system that we propose bringing into effect.
First is the personal income tax. The draft law proposes introducing a progressive taxation scale, which meets society’s demands to increase the fairness of the tax burden distribution depending on people’s income level. We conducted an analysis based on the data of the Federal Tax Service and developed an approach when the progressive scale will not affect 97 percent of the working population. The main thing is that by raising taxes for people with high incomes, we are simultaneously reducing them for families with children who need it, through the mechanism of deductions and family tax payments.
We envisage a mechanism with which parents with two or more children and with an average per capita income of less than 1.5 times the minimum subsistence level per month will be compensated for part of the personal income tax paid through payments that I have mentioned, so that the effective tax rate is 6 percent. That is, more than half of the 13 percent rate will be returned to families like this.
I would like to especially note that this decision will not affect regional budgets, and these resources will be obtained from the expenditure portion of the federal budget.
In addition, standard deductions for personal income tax for the second and third child are increased from 1,400 to 2,800 roubles and from 3,000 to 6,000 roubles, respectively, and total income for these deductions to apply, is increased up to 450,000 roubles.
A tax deduction of 6,000 roubles per year is also established for those who play sports, pass the GTO (Ready for Labour and Defence tests), and undergo an annual medical examination.
As for the progressive taxation scale, we have provided for balanced rates of the personal income tax scale. For those, whose annual income is less than 2,4 million roubles the personal income tax rate will remain at today’s level. This is 13 percent. For the rest of our people, who make up two million or about three percent of the able-bodied population, we offer the following progressive scale: 15 percent for incomes from 2.4 to 5 million roubles a year, 18 percent for incomes from 5 to 20 million roubles a year, 20 percent for annual incomes from 20 to 50 million roubles and 22 percent for incomes over 50 million a year. Changes in the personal income tax will not apply to the monetary allowance and other payments to the participants in the special military operation, their taxation level will remain intact.
Some types of income are supposed to be taxed as income from property sale and the tax rate will be preserved at 13 percent in case the annual income is up to 2.4 million roubles and higher income shall be subject to the single 15 percent tax rate.
We also propose to preserve the maximum rate of 15 percent for incomes in the form of dividends, interest on deposits and income from operations involving securities owned by individuals for less than five years.
Moreover, we should maintain motivation for the development of our country’s stock market. And of course, speaking of interest on deposits we should not forget about the social aspect. The increase should not affect most of our citizens, who keep their savings in banks.
The people with high income are additionally offered some instruments. We have already mentioned that annual income higher than 50 million will be subject to the highest tax rate of 22 percent.
Second. We propose to limit the application of personal income tax relief on the sale of securities with a holding period of more than five years for those whose income exceeds 50 million a year. Currently, there is no taxation for those who keep securities for over five years. In such case the maximum personal income tax rate will be 15 percent.
Further. For the people with high income. Regional and municipal authorities will be entitled to establish higher rates for property taxes on expensive property that costs over 300 million roubles. The maximum rate for such property complexes may be increased from 2 to 2.5 percent by the decision of municipalities and the rate for expensive land plots may be increased from 0.3 to 1.5 percent also by a decision of regional, local authorities.
The principle of fairness will also work in using the additional taxes paid.
All the funds collected in the budget system will be spent for social purposes, for the solution of priority social tasks, important for the people. The range of the expenses from collected taxes concern major priorities declared by the President, such as national projects Family, Long and Active Life, Youth and Children of Russia. The Government will spend the collected funds on raising social payments, support for maternity and children, projects to cope with grave diseases and social infrastructure.
Now a few words on the amendments to taxation of entrepreneurs.
Corporate income tax. The proposed amendments to the taxation parameters of the corporate sector create more stable rules for business in terms of basic tax parameters. We propose abandoning turnover fees, such as exchange rate export duties, which do not take into account the financial result of the business. Our entrepreneurs have repeatedly mentioned this.
Instead, we propose increasing the income tax rate to 25 percent. The 25 percent rate generally corresponds to profit taxation, if we look at global practice.
At the same time, it is important to preserve and promote investment tax encouragement, especially in strategic sectors that will become the foundation for the economy of generations to come.
We propose maintaining taxation conditions for preferential regimes, which operate today, considering stabilisation clauses. All stabilisation decisions envisaged in the law on special contracts will remain without changes in such special regimes as special economic zones and priority development areas, where there are stabilisation clauses.
We propose extending the possibility of applying the investment tax deduction and the regime of regional investment projects for organisations subject to inclusion in the relevant register indefinitely.
We are also introducing a federal investment deduction. This is an innovation. It will only be at the expense of the federal part of the income tax, as business asked us. Its specific parameters will be determined by the Government.
The mechanism for increasing depreciation charges for high-tech equipment and R&D expenses as a source of investment is also expanding. In this case, we are introducing increasing coefficients for R&D expenses in order to encourage the appropriate allocation of entrepreneurs’ funds.
Additional income tax revenues will be redistributed through the budget to support businesses, too. These include technological and infrastructure projects necessary to create a new economy.
In terms of taxation of the corporate sector, it should also be noted that we propose keeping the rates and rules of VAT (value added tax) unchanged.
Taxation of rent industries. Our analysis of individual industries revealed a number of sectors, mostly raw material ones, in which the achieved level of business operational profitability substantially exceeds the average figure – by two and more times. At the same time, the level of rent tax burden is below the minimum acceptable 5 percent of revenue. Our analysis revealed this situation in such industries as the production of mineral fertilisers and iron ore mining. Now we also continue analysing rent economic sectors, proceeding from the external environment and we see room for improvement there.
Taking into account the abolition of exchange rate export duties from January 1 of the next year and the high level of profitability in these industries, we consider it reasonable to adjust the formula for calculating rent taxes for them in addition to the increase in corporate income tax. We suggest raising the level of rent burden to the minimum comparable with other rent industries. In adjusting the legislation, we used an approach on levelling out the tax burden to the target value of 5–6 percent. Importantly, even after the increase of the mineral extraction tax in these industries, their operational profitability remains high – over 20 percent.
Small businesses. The draft suggests adjustment of the simplified special tax regime for small and medium-sized businesses. The goal is to create conditions for small businesses to scale up their operations. Our proposals are also aimed at curbing business fragmentation schemes. Unfortunately, they have become quite common recently.
To develop small businesses, we suggest increasing the thresholds of the simplified taxation system as regards income up to 450 million roubles and as regards fixed assets up to 200 million roubles. At the same time, we propose introducing for taxpayers with the income of over 60 million rubles an obligation to pay a VAT tax with the simultaneous cancellation of the increased rates of 8% for “income” and 20% — for “income minus expenses.”
This approach will allow small businesses to blend smoothly into the general taxation system. They will be offered a choice in paying VAT – either the
general taxation regime — 20% (10% for certain types of goods and 0%) VAT with all deductions; or 5% VAT without the right to deductions (this is for companies with revenues from 60 million to 250 million roubles) and 7% VAT without the right to deductions (for revenues from 250 million to 450 million roubles per year).
The goal of introducing VAT for part of the companies using the simplified taxation system is to help small businesses capable of growth integrate into the economy and even out the conditions of operation between different economic entities to prevent non-payment of indirect taxes from becoming a competitive business advantage.
That said, the suggested adjustment of the simplified taxation system in terms of VAT will not affect most taxpayers. This is important. Almost 97 percent of these businesses will not feel any changes and their revenues are below 60 million roubles per year. This is also important. The bulk of them are engaged in production. A change in taxation is suggested for the most part for businesses engaged in retail and wholesale trade, real estate and public catering. They account for a little over 3 percent.
At the same time, we will grant amnesty to the taxpayers, who are ready to start working properly and reject business splitting schemes.
If a businessman voluntarily denies splitting starting next year and tax authorities do not establish such facts, then the unpaid taxes, fines and penalties for 2022–2024 for business splitting schemes will not be taken into account before imposing taxes and the relevant debt of such companies will be written off.
The load on labour for small and medium-sized businesses in manufacturing sectors will also go down. The list of types of economic activity, products and services according to the All-Russian Classifier for such companies will be set by the Russian Government and there is a proposal to reduce the rates of insurance premiums from 15 to 7,6 percent regarding payments to individuals in excess of the minimal wage amount for small and medium-sized companies in the manufacturing sector.
A few words about getting rid of indirect taxes evasion schemes. Failure to pay taxes may not be a competitive advantage for a business, otherwise it encourages the entire industry to look for schemes, to evade taxes and, naturally taxes are underpaid to the budget and the companies that work honestly are disadvantaged.
To prevent this, we propose improving excise taxation for a number of goods categories where abuses have been detected. We mean imposing excise taxes on the spirit as a pharmaceutical substance with a complete exemption from the excise tax when used for producing medicines. In this case a specific list of medicines and medical products will also be established by the Government. A complete deduction of the excise tax in using medical alcohol for its intended purpose will prevent price increases for medicines. Medical alcohol will be taxed at a common rate in the usual way.
We also propose introducing an excise tax on liquid nicotine with a simultaneous raw material deduction for the production of nicotine-containing products to improve control in the tobacco market. This will also reduce illegal imports of such products.
Mr Mishustin,
Colleagues,
We have agreed with our colleagues to work on the specific wording of the relevant tax proposals and to clarify them for the second reading but our colleagues generally support our proposals.
Let me reiterate, all of these and a number of other legislative initiatives have been thoroughly discussed in parliament and with business associations. We expect the draft law to be considered by the State Duma and the Federation Council in the spring session in order to ensure that the innovations are effective next January.
A few words about three more legislative initiatives which you have already mentioned in your opening remarks. These are amendments to the Budget Code. Why are they necessary? In order to ensure the decisions articulated by the President in his Address.
A few items; actually, there are three. This is the possibility of writing off two-thirds of the regions’ debts on budget loans, provided that the released funds of the regional budgets are channelled to support investment and infrastructure projects. This is a good resource for the regions to develop their economies, improve people’s lives, and it is a good addition to measures to support entrepreneurship and to stimulate economic growth.
The second is amendments to the Budget Code – the distribution of those tax innovations that lead to additional revenue sources between the different levels of the budget system. This is regulated through the relevant budget legislation.
And the third point. In pursuance of the President’s Address, municipalities will have the right to allocate the savings of intergovernmental transfers based on the results of procurement (if there are savings) to the implementation of national projects, rather than send them to the federal budget.
The draft law also contains other, less significant amendments.
The third position, the third draft law, is the introduction of amendments to the Law on Budget.
Mr Mishustin, in your opening remarks you also defined the main parameters. We are talking about the implementation of the President’s Address. The total amount of resources that will be used to implement the tasks set by the President in his Address will be 160 billion roubles this year alone. This includes payments for classroom management to teachers, high-speed Internet, raising the level of remuneration for teachers of fundamental disciplines, and a whole range of other items. Also, about 190 billion roubles will go for the implementation of certain instructions of the President and the Government in terms of payments to veterans and subsidies to energy sales organisations as well as a whole range of other items.
There is one more legislative proposal, regarding the adjustment of pensions for military personnel in connection with the revised inflation forecast for the current year. Earlier we planned to adjust pensions for inflation by 4.5 percent starting from 1 October this year. In connection with the clarification of the inflation forecast to 5.1 percent, a corresponding change in the mechanism for calculating pensions is proposed. In this case, the pension coefficient will change to 89.83 percent from 1 October 2024. That is, pensioners will receive higher pensions taking into account the revised inflation forecast.
Mr Mishustin, colleagues,
I ask you to support the legislative initiatives.
Mikhail Mishustin: Thank you, Mr Siluanov.
I would like to emphasise once again that all the current changes are aimed at building a fairer and more balanced tax system. It should ensure the necessary resources for the implementation of all social programmes, nationwide systemic goals, national projects and state programmes for the benefit of our citizens and our economy.
