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. Last Updated: 07/27/2016

Bill on Economic Zones Set for Duma's Approval

bloombergIT firms are concerned the new law may not help them as much as planned.
The draft law on special economic zones is set to pass its two remaining readings in the State Duma on Friday, Deputy Economic Development and Trade Minister Andrei Sharonov said Tuesday.

Russia's previous experience with special economic zones "ended in total failure," Sharonov said, speaking at meeting organized by the American Chamber of Commerce. The new legislation, in the works since 2000, aims to avoid past mistakes and "attract new investment," he said.

The bill, which passed the first Duma reading in June, foresees the creation of a number of research and industrial zones, so-called IT parks, to be managed by the state.

Companies, admitted as residents of industrial zones, will be required to invest at least 10 million euros ($12.2 million) in greenfield projects over the course of 20 years, including at least 1 million euros during the first year of operations.

IT park residents could potentially cut company expenses by as much as one-third because of the 20 years of tax breaks and other benefits these companies would receive, Sharonov said.

Earlier this year, President Vladimir Putin announced that special economic zones would help Russia's IT industry compete with foreign competitors.

The country's IT services and software development sector remains small, poised to reach $980 million by the end of 2005, according to the largest software developers' association, Russoft.

IT industry players, however, voiced concerns about the government's blueprint for special economic zones.

The bill aims to attract new investors, not to develop the IT industry, said Intel spokesman Yevgeny Zakablukovsky.

"This law is not for us," said Valentin Makarov, head of Russoft. The zones built essentially from scratch would need at least four years to begin operating, which could close the window of opportunity for Russia's export-oriented software companies, he said.

Instead, Russoft is lobbying for tax breaks to be instituted for all IT services and products exporters, regardless of whether they reside inside special economic zones. If the unified social tax were cut by 12 percentage points to 14 percent, software developers would become more competitive, Makarov said.

Fraud would be too difficult to avoid when administering tax breaks for IT companies outside the special economic zones, Sharonov said.

"We don't see [special economic zones] as a panacea," he said. "It is only one measure, taken to improve the business climate and encourage investment."