Page 62 - RusRPTMar19

Tax revenue increases were also helped by a temporary limit on loss carryforwards, set to expire in 2020. The trend goes beyond tax revenue, with carry sectors driving industrial output as well, adds Kulikov.
“Officials have talked a big game on structural readjustment away from hydrocarbons. Indeed, hydrocarbon revenue as a percentage of the total has fallen in recent years. But that's not due to changes in the economy so much as energy prices simply being lower: extractive sectors contributed less to the budget because they made less money,” Bear Market Brief said in a note.
6.1.2 Budget dynamics - regions
Putin wants regions to give tax breaks for investment.Putin is unhappy that regions have not used a new option to stimulate investment through tax breaks on corporate income tax.
Putin’s May Decrees force a lot of extra spending on Russia’s regions, but they do not provide funding. While the federal government has access to the oil and gas export revenues, most regions have to largely live off income, corporate and VAT tax revenues. They are reluctant to cut into their meagre tax base by offering breaks to companies and that has lead to a clash with the federal government that wants to engender regional development as the economy remains too top heavy: Moscow and St Petersburg dominate in the regional make up of the economy.
Regions were given the option to allow investment to count toward corporate income tax two years ago, but most have avoided implementing it, reports BMB. An industrial region in the Urals, for example, restricted the tax break to tourism companies.
Business does not support this particular initiative either. The companies that are doing the most investing are typically new enterprises operating at a loss, so it doesn’t make sense to offer them a tax break on profit. Regions prefer to offer investment incentives by cutting real estate taxes or working out individual deals with large companies. Geography and the labour market often play a bigger role in investment decisions than government initiatives, they argue. Putin wants regions to report back to him about implementation of this
62 RUSSIA Country Report March 2019 www.intellinews.com