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. Last Updated: 07/27/2016

Duma Cuts Profit Tax To 24%

The State Duma added another plank to President Vladimir Putin's drive to reduce the tax burden Friday by voting for a reduction in corporate profit tax to 24 percent from 35 percent.

The government was forced to compromise with the Duma, accepting the 24 percent rate instead of 25 percent.

Deputies had wanted an even lower rate of 23 percent. Many tax breaks and deductions were also scrapped in the bill, passed in a second reading.

"On the whole, cutting the [tax] rate is the result of a strong political will, because it is always difficult to reduce taxes and cut privileges at the same time," Kudrin said.

But he warned that the lower than expected rate might force the government into spending cuts next year.

Putin has made a reduction of the tax base one of his priorities in making sure that the country continues its recovery from a post-Soviet slump.

Economic growth last year came in at a post-Soviet high of 8.3 percent, but is expected to decelerate this year to four percent. Analysts say structural measures such as the tax reform are needed to keep Russia on a growth path.

The draft corporate tax law, backed in a first reading in April, originally foresaw an unchanged rate of 35 percent. But it aimed to ease the total tax burden by expanding the number of deductions.

After heated debate, the government and Duma agreed to cut the tax rate radically and abolish most tax breaks.

The government had originally expected its profit tax reform to reduce the overall tax burden by 100 billion to 110 billion rubles ($3.4 billion to $3.8 billion) a year.

But Kudrin said Thursday that a 23 percent tax rate would force the government to incur losses in revenue of more than 210 billion rubles. He said after the vote that the government was concerned that a greater than planned cut in the basic profit tax rate would hurt regional budgets and warned about possible cuts in 2002 spending.

Under the draft law, the basic rate would be split to allocate 14.5 percent to the federal budget, 7.5 percent to regional budgets and two percent to municipal budgets.