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. Last Updated: 07/27/2016

Mayor: Tax Amnesty Will Lure Investment

Moscow Mayor Yury Luzhkov has submitted an unusual proposal to President Vladimir Putin -- a five-year tax amnesty to all Russian citizens investing in the construction of homes, hospitals, schools and agricultural structures.

Luzhkov wants to give people who invest in construction the right not to declare where the money comes from. While the proposal has gained some support among senior government officials, lawyers say the move would be an invitation to launder money.

At a City Hall meeting on mortgages Friday, Luzhkov said it was unjust to require apartment buyers to divulge the origins of their down payments.

Luzhkov first voiced his plan in July in a letter to Putin regarding this "unique form of tax relief." In the letter, Luzhkov said people should have the right to spend undeclared income on building or buying a home, "new institutions of education and health," as well as agricultural infrastructure, for five years.

Luzhkov said his plan is one way to put to use nearly $400 billion currently held by Russians either outside the country or under mattresses. It will, "in a visibly short period," force the population to work "toward the development of the country," Luzhkov wrote. "Respected Vladimir Vladimirovich [Putin], I turn to you with a request -- support this proposal."

A highly placed government official said Luzhkov's proposal had been discussed among a small circle of ministers and that it had been generally agreed that "if Luzhkov is talking about a 30 percent down payment for an apartment, then it is doable. What's the use of asking the middle class where they got their $20,000 when it is clear that it was lying under the pillow?" the official said.

As of Friday, Luzhkov had yet to receive a reply from Putin. The official said he expected the Economic Development and Trade Ministry and Gosstroi, the state construction agency, to support the mayor's proposal, but the Finance Ministry to oppose it.

Vice president of Petrokomerts Bank, Konstantin Kolpakov, said that when he was deputy chairman of the Kazakhstan's National Bank in 1996-1997 the former Soviet republic temporarily introduced similar measures and the scale of construction "grew sharply."

However, the proposal would only lift barriers that have in practice never existed because the Tax Code does not have mechanisms to implement them. Declaring income is essential, but "you can write off the source as 'a loan from a friend,' or 'don't remember where I got it,'" in the declaration form, said a lawyer and one of the authors of the first part of the code, Andrei Makarov.

The government's representative to the high arbitration and supreme courts, Mikhail Barshevsky, said he thinks it is "amoral to consider someone's money honest if they are buying an apartment, but dishonest when buying, say, a painting."

He added: "To legalize millions earned from selling drugs, it would be enough to buy and sell a few apartments."