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. Last Updated: 07/27/2016

Kremlin Plans to Leave VAT at 20%

The Russian government believes value-added tax should remain unchanged at 20 percent this year and be cut to 15 percent from 2000, a Finance Ministry official said Monday.

"This is the government's position - the VAT rate should not change during 1999," Deputy Finance Minister Mikhail Motorin said at a business seminar.

VAT could be cut from the beginning of next year to 15 percent, not 10 percent as previously planned, and the Finance Ministry was doing preliminary 2000 budget calculations using the 15 percent figure, he said.

President Boris Yeltsin recently vetoed a measure approved by parliament that would have cut VAT to 15 percent from 20 percent from July 1, and to 10 percent from Jan. 1, 2000.

Yeltsin had responded to objections from the International Monetary Fund, which said lowering VAT, the most easily collected tax, would be a blow to government revenues.

Motorin said the 10 percent VAT rate did not allow the ministry to make both ends meet. "The maximum we can do with the VAT is to cut it to 15 percent while keeping a 10 percent rate for a number of goods," he said.

The Finance Ministry would next year suggest cutting the upper ceiling for income tax of 45 percent, Motorin said. Parliament recently hiked it, with effect from Jan. 1, 2000, from the current 35 percent.

The higher rate would only exacerbate make tax avoidance, Motorin said.

Meanwhile, the IMF's Moscow representative Martin Gilman said Monday that the fund hopes to nail down a new Russian credit program with a delegation in Washington this week, but questions about its implementation have yet to be settled.

First Deputy Prime Minister Yury Maslyukov and Finance Minister Mikhail Zadornov were among the group of Russians that flew to Washington on Sunday. A first round of meetings is planned for Tuesday.

Gilman said fiscal and monetary policies had been agreed and the fund believed a program would have to include foreign debt restructuring.

"In the fiscal, monetary and structural areas, most of the policies we would like to support in a Russian program have been identified and agreed upon," Gilman said. "There are questions of implementation."

"I hope all of these outstanding issues can be resolved at this stage, with the Russian delegation in Washington. 1999 is going by quickly. It is very important that they implement the program measures as quickly as possible."

Alexander Pochinok, head of monetary and credit policy for the government, said Monday that the delegation to Washington had taken radical proposals to the IMF talks.

"The delegation took some proposals to Washington. They are very radical, extremely radical. I have not seen such tough proposals for a long time," Pochinok told a seminar. He did not explain the proposals.

Russia wants to borrow at least $4.8 billion from the fund this year to repay what it owes the IMF.

The fund is still stinging from Russia's abandonment of an IMF program last August. The country plunged into a crisis after a nearly $5 billion cash injection from the fund.

The government may need parliamentary support for some measures agreed with the fund.

During a recent visit to Moscow, Michel Camdessus, the Fund's managing director, who is expected to talk with Russian officials during the IMF spring meeting in Washington this week, polled senior parliamentarians for their support of reforms.

Russia is also struggling with a foreign debt bill of $17.5 billion this year, a few billion dollars short of total projected federal revenues for the year. "In the context of pursuing an economic adjustment program that the fund would support they will need to work out a restructuring of obligations falling due to their external creditors," Gilman said.

Gilman said IMF board approval of a loan would take at least two or three weeks after being approved.