Page 72 - RusRPTMar21

Although real wages were up 2.2% y/y last year, real disposable incomes declined 3.5% y/y amid a surge in unemployment, which reached 5.8% in 2020.
As the new spending represents about a quarter of the savings the government was hoping to make from spending cuts the question remains on how it will fund the programme.
Authorities could spend unallocated expenditures from 2020, which would probably cover the proposed amount. The government underspent by RUB1 trillion in 2020, with RUB400bn held in reserves and RUB600bn uncontracted.
The authorities could also intensify the progressive taxation system and make further changes to taxation to reap higher revenue from personal income tax, excise duties and the commodity sectors without changing the announced tax benefits for IT and SMEs.
As we noted previously, we were expecting additional spending in 2021 thanks to the 2020 reserves, and we see the fiscal balance gradually moving from 3.9% of GDP in 2020 to 2.6% of GDP in 2021.
Known as "Putin gift" to the rich, last year the Kremlin offered a deal that allows Russia’s top companies to bring their domicile back home and registered in special “on-shore” havens that have beneficial tax regimes. The Kremlin is trying to stamp out capital flight and the loss of tax revenues from Russian companies that move their legal residency to more advantageous off-short tax jurisdictions.
In parallel the Kremlin has been aggressively renegotiating double tax regimes and introducing a 15% tax on companies that legally register abroad but have most of their assets in Russia. Cyprus has already caved in to the Kremlin’s demands, but talks with the Netherlands, another favourite for Russian corporates looking to register off shore, is not going well. Prime Minister Mikhail Mishustin threatened to withdraw from the double taxation treaty with the Netherlands entirely earlier this month if an agreement can’t be reached.
Still, many Russian companies are not convinced. As bne IntelliNews reported many Russian companies are already moving to the United Arab Emirates (UAE), which is becoming the new off shore tax haven of choice.
The Kremlin’s on shore haven scheme offers Russian companies moving home a favourable tax regime for controlled foreign companies (CFCs). About half of Russians who declared their CFCs in 2019 filed for a special tax regime, VTimes reports as cited by The Bell. This regime was conceived as a "gift from Putin" for businessmen close to the Russian state.
According to the Federal Tax Service, more than 260 people have filed
72 RUSSIA Country Report March 2021 www.intellinews.com