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. Last Updated: 07/27/2016

60% tax set for June debate

After months of closed-doors meetings with foreign tax reform advocates, the Russian government has submitted a bill to parliament to reduce the rate on the hotly-contested 60 percent personal income tax, according to Russian and foreign officials.


The bill will be debated by the end of this month, a Russian official said.


Moscow's foreign community has lobbied fiercely against the current law, saying a 60 percent tax bracket would deter businesses from operating here and halt the flow of further investments into Russia.


"If they didn't change the rate, you would have an awful lot of people leaving the country in July", said Dmitry Ushakov, national tax director for the accounting firm DRT.


Though it now appears likely that within the next few weeks Russian deputies will decide the fate of foreign taxpayers, there are conflicting reports about the rate and structure of the proposed tax law.


Leading tax reform advocates say the proposal drafted by the Russian cabinet calls for slashing the levy by half to 30 percent for all residents who have lived in Russia for at least 183 days since January 1, 1992 regardless of salary.


But Sergei Shatalov, the Russian parliament's chairman of the commission on tax policy, said in an interview that the proposal before parliament calls for a graduating tax rate topping out at 40 percent for those earning an income exceeding 600, 000 rubles or $7, 500 annually.


According to Russian officials, the slated July 1 fixed exchange rate of 80 rubles to the dollar will be used to compute hard currency salaries into their ruble equivalent, placing the vast majority of foreigners into the highest tax bracket.


Many tax experts here have called the 30 percent rate fair, but are still tempering their enthusiasm. "If you look around the world, 30 percent is a sound rate", said Edgar Fulton, commercial counselor with the American Embassy.


"But no one's breathing a sigh of relief yet. We need to see it approved by parliament and become the law of the land".


Even if the bill calling for a lower tax rate is approved by parliament, the Russian government is standing by its plan to tax individual's worldwide assets instead of income earned on Russian soil.


Though everyone agrees that a 30 or 40 percent tax rate is more palatable than the stiff current 60 percent levy, some are saying that even the lower rate demands closer scrutiny.


"The 30 percent is reasonable compared to other countries", said Robert Langer, an attorney with Chadbourne, Hedman, Raabe & the Union of Advocates. "But you also have to look at it to see if it is reasonable against the services you receive in return. You have to ask, 'What am I getting for my taxes? '"


Not enough, according to a sales representative from an American company in the Fortune 500, which has set up shop throughout Eastern Europe.


After placing wheels in motion to open a Russian branch, the firm recently decided to back out. The main reason was the regressive tax laws, said the sales representative.


As Russia moves to a free market economy, officials are scrounging to create a tax culture. Though Russia adopted the former Soviet Union's 20 bilateral tax treaties with other industrialized nations, the treaty with the United States is on the upcoming summit agenda.


The treaty, if signed, would protect American citizens working here front paying taxes in both countries.


Though tax experts say most of the treaty's stipulations are aimed at corporations, American journalists may lose their special official two-year tax exemption, Langer said.


Years of doing business in a tax-free haven have made it difficult for many foreigners to accept the idea of filling Russia's coffers.