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. Last Updated: 07/27/2016

Ministries Assail Plans to Cut VAT

The Economic Development and Trade Ministry and Finance Ministry oppose a proposal by the prime minister to slash value-added tax, seeing it as a risky step unlikely to support economic growth, top officials said Wednesday.

The officials came out in what appeared to be a concerted campaign to shoot down a proposal made last weekend by Prime Minister Mikhail Fradkov to slash VAT to 13 percent in 2007 from 18 percent now.

"The key question is the risk of an oil price drop. We must protect economic stability and prevent financial cataclysms," said Economic Development and Trade Minister German Gref.

He was joined by Deputy Finance Minister Sergei Shatalov, who said there were better ways to lighten the tax burden on business and stimulate economic growth.

"We still strongly oppose this reduction. It is possible and necessary to reduce the tax burden, but that has to be done sensibly," Shatalov told Vremya Novostei in an interview.

Gref said that together with the simplified procedures and VAT repayments for exports, which have already been approved, the VAT cut would cost about 500 billion rubles ($17 billion). "This is certainly a huge risk," he said.

Shatalov also opposed Fradkov's proposal, backed by the oil industry, for greater differentiation of oil taxation -- linked to the quality of oil produced, for example.

But he did say the Finance Ministry was open to the idea of tax holidays on new fields.

He also said a reduction in taxes on corporate profits to 20 percent from 24 percent could be discussed at some point.