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. Last Updated: 07/27/2016

Cabinet Blesses Plan for Economic Zones

VedomostiEconomic Development and Trade Minister German Gref
The government is planning to introduce special zones with simplified tax and customs policies as early as next year in an effort to diversify the economy away from raw materials and sustain economic growth.

The Cabinet on Thursday approved a bill to set up such zones for manufacturing companies and research centers.

Speaking at the Cabinet meeting, Economic Development and Trade Minister German Gref said the legislation could be submitted to the State Duma in a week to 10 days and adopted in the first half of this year.

"Already at least 10 Russian and foreign firms are waiting for this draft law and are ready to invest in 2006," Itar-Tass reported him as saying.

While acknowledging the importance of the new zones, Prime Minister Mikhail Fradkov warned that they should not be exploited as tax havens.

"It is important that this instrument of developing free economic zones doesn't turn into a banal tax hole," he said in televised remarks. "This isn't the first attempt and this time it must be successful."

Attempts to set up special zones in the 1990s had led to widespread tax evasion as companies mostly registered trading companies there.

The government plans to limit new special zones to companies producing goods or conducting industrial research, the government said in a statement.

Raw materials extraction, scrap processing, metal smelting and liquor and tobacco production are activities that will not be allowed in the special zones, it said.

The zones will be open to companies with charter capital of more than 10 million euros ($13.4 million) and who will be banned from opening branches elsewhere in Russia.

The zones will be open for imports without duties and quotas, and state inspections of companies registered there will be limited, the government said.

"We will observe how it works for between two and three years and then, if the stimulating role of the tax privileges is insufficient, those will be revised" to encourage more investments, Gref said after the Cabinet meeting.

The Tax Code will be amended to reduce taxes for companies registered in the zones.

Gref said the projects would be developed as greenfield projects on unused territory. Infrastructure work would begin in 2006, while the companies themselves would arrive from 2007.

A separate federal agency would be created to manage the zones, Gref said.

(Bloomberg, AP)