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. Last Updated: 07/27/2016

Putin Pledges New Tax Breaks

Vladimir Putin opened a Kremlin-sponsored conference on foreign investment Monday with pledges to improve the tax and legal climate for doing business here, and the acting president's remarks were followed by rapid-fire announcements of decrees bringing in new economic policies.

It fell to Mikhail Kasyanov, the man often described as Putin's acting prime minister, to fill in the specifics. He did so Monday evening in remarks to Itar-Tass, promising to sign later in the day a decree increasing by five-fold the amount of advertising expenses, employee training expenses and business entertainment expenses that can be deducted from a foreign company's tax bill.

Kasyanov told Itar-Tass the new tax deduction rules would come into effect as of April 1. It was not clear if that would mean 1999 tax returns could take advantage of the new deductions.

The new deductions, while likely to have a minor effect on government revenues, will be a major boon to businesses large and small. In recent weeks The Moscow Times and its sister paper Vedomosti, a Russian-language business daily, have been campaigning for a rollback of these and other taxes, which are particularly difficult for local business to swallow and have helped to drive about 40 percent of the nation's commercial life into the so-called "gray economy" of offshore zones and quasi-legality.

Kasyanov also pledged to develop a special new federal government committee that would address tax conflicts with foreign companies. He said the government had decided to establish this new tax-conflict committee at the request of participants in Monday's conference.

Kasyanov said the new committee's exact nature was still being considered, but he expected it would meet once every week or two.

Putin told the meeting of the Consultative Council on Investment in Russia, a group uniting top Cabinet officials and representatives of major foreign companies, that foreign investment in Russia is on the rise. Putin said foreign investment was up nearly a third in 1999 from crisis-dogged 1998, and he added that the government expects $5 billion in direct foreign investment in 2000.

If so, that would be an improvement over the $4.2 billion that was directly invested from abroad in 1999, according to the Russian Statistics Agency.

But it is still a mere trickle by international standards. Over the last decade, Russia has attracted investments totaling a mere $31 billion, according to the international consultancy KPMG.

Of these, about half were stakes placed in financial markets and half direct investments in real businesses. That works out to roughly $100 of direct foreign investment per Russian citizen, about 16 times less than the amount of foreign capital that has come into Estonia, for example.

In fact, of some $190 billion in private money invested last year into "emerging markets," Russia and Eastern Europe together received just $33 billion, according to the Washington-based Institute of International Finance. Latin America won the lion's share with $90 billion - the first time in 10 years more investment went south rather than east to Asia, which attracted $59 billion.

And even talk of the $4.2 billion that did officially come to roost here in 1999 does not take into account such oddities as Cyprus - a favored offshore zone for Russian businesses - being the third-largest foreign investor in 1999, after the United States and Germany, with investments of $923 million.

Speaking in German to a meeting of leading German investors, Putin said German private investment had been one of Russia's leading allies in recent years, and in remarks reported by Itar-Tass he expressed a hope that "this tempo would not be lost because of the political notions of the day."

That seemed a gentle commentary on Western dissatisfaction with the Kremlin's war in Chechnya. But according to Kasyanov, the war and its excesses never came up Monday.

"A distinguishing characteristic of the meeting today is that no one mentioned Chechnya," Kasyanov said. "I did not hear a single jeer or criticism about that from the foreign investors."

Putin also noted in his remarks that while foreign investment in Russia is necessary, restoring the national economic health will depend more on an intelligent husbanding of the nation's domestic resources.

"Foreign investment is important, but internal reserves are the main thing," Putin said. He added, in remarks reported by The Associated Press, that the best sign for foreigners would be if Russian capital starts flowing back into the country instead of into offshore havens.

Among representatives of foreign investors was Charles Frank, first vice president of the European Bank for Reconstruction and Development, who said government has to "rebuild the weakened authority of the state.''

Frank said commercial banks were still too often dodging the law and called for change at the Russian Central Bank.

"Investors want to see the Central Bank of Russia impose high standards of transparency and the adoption of international accounting standards,'' Frank was quoted by AP as saying.

"[Investors] must believe that the rule of law will prevail, that property rights are respected, that the rights of creditors and minority shareholders are protected.''

The EBRD is one of the nation's largest foreign investors. It sank another $200 million into investment projects in 1999, and plans to triple that in 2000.