In a Word

You Can’t Agree About Taxes

Jun 12, 2012:

When a Russian company pays abroad to a service company, it acts as a tax agent for the Treasury: it must withhold VAT and pay it on the foreign company’s behalf. If it doesn’t, it will have to do so anyway plus pay penalties and interest - regardless of any agreement on this matter between the parties.

Joint Stock Company "Ulyanovsk Motor Plant" had a contract with a foreign company. The agreement specified that the money for the services had to be paid in full and without any tax deductions. Theoretically speaking, the foreign company was the actual payer of VAT, yet in this case - because it wasn’t registered in the Russian tax office - the Russian company had to pay the tax on top of the services’ fees. This was the decision of the Supreme Commercial Court No 15483/11 of June 3, 2012.

More Transparency

Jun 10, 2012:

Russian President Vladimir Putin has promised to create an open database of all court decisions and to introduce the practice of Internet broadcasting of court proceedings, said the president’s press service. This will increase, he said, the transparency of the system and narrow the space for the subjective approach.

Is St. Petersburg a Homophobic City?

May 4, 2012:

A first man has been fined for the violation of new St. Petersburg law banning ‘promotion of homosexuality and pedophilia among minors’. The Justice of the Peace has found activist Nikolai Alekseyev guilty of violating the law and imposed on him a $150 penalty.

On April 12, Mr Alekseyev was arrested during a single rally. How a one-man stand in front of mayor’s office with a placard stating 'homosexuality is not a perversion - perversions are hockey on grass and ballet on ice' can constitute brainwashing our children into becoming gays is beyond reason.

What has become clear, however, is that the law, despite of what its proponents say, is not about children but about gays. It is also clear now is that a long and rambunctious brawl, both in and out of the court room, has begun. The only significant outcome of this battle will be the label of a homophobic city sticking to St. Petersburg for a long time.

Bigger Tax on Expensive Cars

May 4, 2012:

Russia will not introduce a luxury tax, at least in a traditional way. Instead, those running expensive cars will have to pay more.

Deputy Finance Minister Sergei Shatalov has said that the government decided to increase the tax on vehicles with engine capacity over 410 horsepower. He has even named the brands which will fall under the new rule: Maybach, Bentley, Lamborghini, Ferrari, Maserati, Porsche, Aston Martin, Rolls-Royce, Chevrolet Corvette and 6-liter Mercedes and 7-Series BMW. This is about 20,000 cars, mainly in Moscow and Moscow region.

The engine capacity has been picked to 'almost completely eliminate the increased taxation of cars manufactured in Russia’.

The law will also introduce higher tax on expensive property: real estate worth up to 100 million roubles ($3 million) will be taxed at the rate of 0.05%, between 100 and 300 million roubles ($10 million) – 0.1%, and over 300 million roubles – 0.3%.

The tax will be introduced in 2013.

Bubble Trouble

Apr 27, 2012:

In the 2000s property markets grew at astonishing speeds all around the planet. Yet, what was happening in Russia looked crazy even among this universal madness. If in the UK house prices nearly doubled during the last ten years, in Russia they tripled in just five years from 2003 to 2008. Overall, during the decade real estate prices here grew by 500%.

There are a number of factors that added to this distortion of our sense of normality: the vast inflow of oil money, the increase in wages and the lack of housing – per capita housing space in Russia is only 24.5 square meters which is 10% less than in neighbouring and much poorer Ukraine, one and a half times less than in Germany and almost three times less than in the U.S.

However, the most important component is the availability of credit. Until the early 2000s, the mortgage market did not exist. Property was bought on what people managed to save under the mattresses. The influx of capital from banks into the real estate market, apparently, was and remains the single most important factor for property prices.

Research conducted by National Agency for Financial Studies in the cities with population over 500,000 people shows that the potential for mortgage lending is far from exhaustion. According to NAFS, banks have just touched the surface of a huge pool of potential borrowers.

Less than 2% of Russians are ready to borrow at existing terms. For most the existing rates are unacceptable. This is not surprising, since the rates, by European standards, are simply rapacious, ranging from 12% to 15%.

If the rates go down to some decency and common sense, the mortgage lending will surge and Russia’s property market will explode again.

A Study in Pink

Apr 24, 2012:

Russia’s current Prime Minister and soon-to-be President Vladimir Putin and as yet President but soon Prime Minister Dmitry Medvedev have switched places, again. Vladimir Putin has stepped down as the chairman of United Russia. The seat will be taken by Dmitry Medvedev.

That Putin will try to distance himself from the ruling party, which fared badly in the parliamentary elections, was clear long ago. Still, the unsophisticated bluntness of the move has adorned this dry, predictable news with a touch of sensational flavour.

The chief of the party’s supreme council Boris Gryzlov has expressed confidence that the congress will unanimously support the proposed candidate. ‘In May, the congress of the party will take place, and your proposal to elect Dmitry Medvedev as the party leader will be supported by our entire party, all the delegates to the congress,’ Mr Gryzlov has said to Valdimir Putin. Then, somewhat unexpectedly, he added that the congress ‘must take steps towards democratization of the party life’.

Boris Gryzlov, who earlier coined the phrase that ‘Parliament is not a place for discussions’, also responded to those who say that United Russia is in decline. ‘They see something pink on the horizon, but this is sunrise not sunset.’

Hocus-Pocus

Apr 19, 2012:

As soon as in August, a new levy, a car scrappage tax, is likely to come into force. The size of the tax, and the way it is going to be calculated, makes it not a means of funding the disposal of old vehicles but an instrument of economic policy. But first and foremost, it is going to be a monument to the protectionist’s creativity.

With the accession to WTO – and, again, this will happen in August – Russia will have to reduce import duties on automobiles. With a magnificent hocus-pocus Denis Manturov, the head of the Ministry of Industry and Trade, has created a levy that looks like a good old disposal tax but depends on a vehicle’s country of origin, its age, size of the engine and ‘special circumstances’ - and varies from zero to $20,000 for cars and to $50,000 for buses.

The beauty of the bill lies in the fact that it implies that several hundred members of Parliament, thousands of WTO bureaucrats and millions of consumers are expected to believe that scrapping a Swedish Volvo costs a hundred times more than a Russian Lada.