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. Last Updated: 07/27/2016

T-Bills Tax Causes Confusion

The government has levied a tax on its own revenue-raising security, but bankers say it contradicts previous presidential decrees and could hurt the state treasury bill program. The new regulation, issued by Prime Minister Viktor Chernomyrdin, orders banks to include income from operations with the state treasury bills in the total volume of bank income, which is taxable. It means T-bills profits on the secondary market will be a subject to the 43 percent federal and local profit taxes. The profit is composed of a 13 percent federal income tax and a local tax, which is 30 percent in Moscow. But bankers say the new regulation is at odds with previous decrees of the president, the Central Bank, the State Tax Service and the Finance Ministry. "Now the question arises: who is more important --Yeltsin or Chernomyrdin?" said Vasily Uzhva, a tax expert with the International Moscow Bank. Uzhva said the new regulation contradicts Yeltsin's Law on Income Taxation, adopted in 1991, which exempts operations with state securities from taxation. The new regulation was published May 21 in Rossiiyskaya Gazeta, the government newspaper, and became valid on the day of publication. Bankers said that new taxes on the sales of government bills and bonds could undermine Finance Ministry plans to expand dramatically state security issues to finance the government budget deficit. "The state is taking money out of its own pocket," said Konstantin Karishchenko, head of the secondary market department of the Central Bank. But Bella Zlatkis, head of the securities department of the Finance Ministry, said the new regulation appeared to be the result of a bureaucratic snafu. She said the document was not presented to her for signature before publication, as it should have been. She said the Finance Ministry will issue a clarification within the next two days. This will state that although income from securities trade must be included into the total volume of bank income, it is exempt from taxation. Karishchenko explained that under the new regulation signed by Chernomyrdin, prices for newly issued three-months bills will inevitably decline because banks will bid down the price as the tax erodes the yield. He said the state will recover the difference by the taxes on the secondary market operations. However, the taxes will be received over the course of three months which, with the present inflation rate, is unprofitable for the government, Karishchenko said. Rasskazov said the new tax, if it is not changed, will make commercial banks switch from the state treasury bond market to the credit market. The annual return for the state treasury bills will decline to 90 percent from the present 141 percent rate, said Alexei Sarchev, head of the stock department of the Moscow Interbank Currency Exchange, which trades T-bills. Such a rate would put it below the potential earnings on the credit market and closer to the inflation rate of below 10 percent in April. "They are closing the only securities market that is interesting for the banks. It will be very hard to attract banks back to this market again," said Andrei Grechishnikov, an expert with the stock department of Stolichny Bank.