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. Last Updated: 07/27/2016

Kudrin Fires Salvo at Ministers in VAT Feud

Deputy Prime Minister Alexei Kudrin on Wednesday railed against the looming decision to cut the value-added tax, defying the president, the prime minister and his fellow ministers.

"Such a reduction of the VAT is an absolutely destructive decision," Kudrin, who is also finance minister, said at a tax conference, firing the latest broadside at his opponents in the long-running dispute.

Prime Minister Vladimir Putin, who is in favor of a cut, is planning to bring the dispute to a head in August. President Dmitry Medvedev urged in his budget policy recommendations for 2009 to 2011, released earlier this week, to set a date for a lower VAT rate to kick off.

The Economic Development Ministry wants the tax to be cut by one-third, from 18 percent to 12 percent, deputy minister Stanislav Voskresensky said at the same conference, Interfax reported.

He said the lower tax might take effect as soon as 2010.

The federal budget could compensate for the losses if tax officials raise the VAT collection rate to 80 percent, from the current 67 percent, Voskresensky said. In that case, the growing economy will bring in the same amount in VAT just four years after the lower rate comes into force, he said.

Proponents say a drop in the tax could give a further boost to economic growth. The funds it raises, however, are a mainstay of the federal budget, and a cut could undermine the government's goal to spend more on health care, education, pensions and roads, Kudrin argued Wednesday.

"Let's weigh everything," he said, calling for a better administration of the tax instead.

"Kudrin looks like a lonely warrior," said Tatyana Orlova, an economist at ING Bank in Moscow. "It looks like Mr. Kudrin isn't finding support at the top."

It now appears that tax will be reduced, although the size of the cut and the time frame remain unclear, she said.

Kudrin sounded more inclined to reduce oil industry taxes. "In principle, yes," he told reporters when asked whether he supported further tax measures in an effort to reverse a production slump.

The State Duma earlier this month gave preliminary approval to the Cabinet's proposal to cut the mineral extraction tax for oil. A Duma committee earlier this week backed tax holidays for the development of remote oil greenfields, a proposal that also came from the Cabinet.

"It's just the first step," Kudrin said. "We will continue to study the economics of the oil industry."

Kudrin said a decision about more cuts to oil industry taxes would likely come after the Cabinet maps out an overall tax strategy for the coming years, which is expected in August.

He also said it was possible to meet Medvedev's target of 6 percent inflation by 2011. "I am sure that the government has sufficient instruments to reach this goal," he said.

Inflation hit 11.9 percent last year. The government is struggling to keep it at 10.5 percent this year, and economists predict prices will rise 12 percent or more.