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. Last Updated: 07/27/2016

Companies Wary of New Tax Plan

Russian companies are skeptical that they'll receive much help from the government's proposal to overhaul the tax system by shifting more of the burden to individuals.

"I don't want to build illusions upon the government's statements,'' said Anatoly Reutov, director of operations at the Zapsib Metallurgy Plant, Russia's fourth-largest steel producer. "We have already heard a lot about reducing the tax burden and in reality they always want to collect more, not less.''

The proposed change is part of a broader package of measures that Prime Minister Sergei Kiriyenko introduced in an effort to boost revenue and narrow the government deficit.

The government aims to cut the corporate tax rate in order to encourage the growth of business.

Zapsib, which is operating at a break-even level after creditors took temporary control of the company, faces bigger challenges than its tax burden. Production costs now average 97 kopeks (15 cents) for 1 ruble's worth of production, and a slump in world prices for steel and other metals probably will boost the average to 1.2 rubles, Reutov said.

Krasnoyarsk Aluminum Plant, Russia's second-largest aluminum producer, has similar problems. The company pays $60 for every ton of aluminum it carries to the nearest seaport no matter how much it ships. General Director Yury Ushenin said the government's initiative will do less to boost its business than lowering transport and electricity costs would accomplish.

"If you ship more, you should pay a lower price," he said. "The same for electricity consumption. I don't see why it should be different from retailing, where you pay much less per item in a cash-and-carry shop than in a normal one just because you buy more."

The government's plan does address these issues, as it proposes price cuts of 25 percent to 30 percent on goods and services provided by natural monopolies, such as rail shipments, and as much as 50 percent on gas and electricity. The discounts would be available only if the buyer pays in cash.

Norilsk Nickel, the world's biggest producer of nickel and palladium, says the tax changes won't help if the government doesn't assist companies with other obligations, such as running company towns. Norilsk owes the government 618 million rubles in taxes. It spent all of its profit last year to meet social expenses in its towns, where it supports facilities from kindergartens to laundries.

"Our social spending must be taken into consideration to offset at least part of our tax obligations,'' Yury Kotlyar, a vice president in the company, said.