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As concerns the sphere of good governance development, the RF President has signed the new law On referendum. It should be reminded that referendums (although not held since 1993) are a rather powerful tool for both influencing the authorities and carrying out political advertising campaigns. The key stipulation of the law is the requirements concerning the collection of signatures: 4.5 thousand people, about 100 campaigners in each region (not less than 45 regions) should after certifying their own signatures with public notaries collect about 2 million signatures in support of a referendum. No other persons will have the right to collect signatures. In fact, this decision is aimed at the liquidation of any possibility to held referendums in Russia, since the bureaucratic barriers introduced by the new law effectively prevent it. The new law, as well as approved earlier amendments to the law On meetings are an evidence that the authorities seriously apprehend popular discontent about the currently pursued policies, since no preceding Government considered such measures necessary.

S. Zhavoronkov The State of the Federal Budget In April of 2004, the revenues of the federal budget increased to 20.4 per cent of GDP, while revenues of the consolidated budget grew by about 3 p. p. in comparison with the figures registered in the preceding month and made about 32.8 per cent of GDP. To a considerable degree, the growth of the budget revenues was determined by high level of revenues generated by the profit tax both in the federal budget, and in the budgets of RF subjects. For instance, in April of 2004, profit tax revenues of the RF consolidated budget in real terms exceeded the figures observed in the respective period of the preceding year almost 1.5 times.

According to the estimates made by the RF Government, in 2005 the amount of the stabilization fund shall make Rub. 500 billion. The RF Government is planning to utilize all additional receipts of the stabilization fund for financing of interest expenditures relating to the foreign public debt and of the RF Pension Fund, what could permit to reduce the deficit, which emerged in the result of the reduction of the SST rate in 2005. The Government is also planning to introduce a number of amendments to article 25 of the RF Tax Code more clearly defining the issues pertaining to the profit tax application. Besides, as concerns VAT it is planned to switch from taxation treatment based on the country of origin principle to the country of destination principle with respect to trade with oil and natural gas vis--vis the CIS member countries.

In January through April of 2004, the revenues of the federal budget (cash execution) made 20.4 per cent of GDP, while expenditures made 16.8 per cent of GDP (see Table 1). Therefore, the federal budget surplus made 3.6 per cent of GDP.

Table The monthly execution of the federal budget of the Russian Federation (in % of GDP1, cash execution).

III`03 IV`03 V`03 VI`03 VII`03 VIII`03 IX`03 X`03 XI`03 XII`03 I`04 II`04 III`04 IV`Revenues Profits tax 1.4% 1.5% 1.4% 1.4% 1.4% 1.3% 1.3% 1.3% 1.3% 1.3% 0.9% 0.7% 1.2% 1.4% Income tax 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Unified social tax (UST) 2.8% 2.9% 2.9% 2.8% 2.8% 2.8% 2.7% 2.7% 2.6% 2.7% 2.3% 2.6% 2.8% 2.9% Indirect taxes 9.9% 9.6% 9.6% 9.2% 9.1% 8.9% 8.7% 8.6% 8.5% 8.5% 10.5% 8.5% 7.6% 7.6% VAT 7.2% 7.2% 7.2% 6.9% 6.9% 6.8% 6.7% 6.6% 6.6% 6.6% 8.1% 6.6% 6.2% 6.4% Excises 2.6% 2.4% 2.3% 2.2% 2.2% 2.1% 1.9% 1.9% 1.9% 1.9% 2.3% 1.8% 1.4% 1.2% Taxes on foreign trade and foreign economic transaction 3.4% 3.5% 3.5% 3.4% 3.4% 3.4% 3.3% 3.3% 3.4% 3.4% 3.6% 4.2% 4.4% 4.7% Other taxes, fees and levies 2.0% 2.2% 2.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.5% 0.1% -0.2% -0.2% Total taxes and other payments ** 19.4% 19.6% 19.4% 18.8% 18.7% 18.4% 17.9% 17.9% 17.9% 18.0% 19.9% 16.1% 15.9% 16.4% Non-tax revenues 1.3% 1.2% 1.7% 1.6% 1.5% 1.5% 1.4% 1.4% 1.3% 1.3% 0.9% 0.8% 0.9% 1.0% Total revenues 20.9% 21.0% 21.3% 20.6% 20.4% 20.0% 19.5% 19.4% 19.3% 19.4% 20.9% 19.6% 19.7% 20.4% Expenditures State administration 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.5% 0.2% 0.3% 0.4% 0.4% National defense 2.6% 2.7% 2.7% 2.6% 2.6% 2.6% 2.5% 2.5% 2.5% 2.7% 1.8% 2.2% 2.6% 2.9% International activity 0.2% 0.2% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% -0.1% 0.2% 0.2% 0.3% Judicial authorities 0.1% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.1% 0.1% 0.2% 0.2% Legal protection and security 1.7% 1.7% 1.7% 1.8% 1.7% 1.7% 1.7% 1.7% 1.7% 1.9% 1.1% 1.5% 1.7% 1.9% Fundamental research 0.2% 0.2% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.1% 0.1% 0.2% 0.3% Services to national economy 0.5% 0.6% 0.7% 0.8% 0.8% 0.8% 0.9% 0.9% 0.9% 1.1% 0.2% 0.4% 0.5% 0.6% Social services 2.0% 2.3% 2.2% 2.2% 2.2% 2.2% 2.1% 2.1% 2.1% 2.3% 1.4% 1.7% 1.9% 2.1% Government debt servicing 3.0% 2.3% 2.1% 2.0% 1.8% 2.0% 2.0% 1.8% 1.7% 1.7% 1.1% 2.1% 2.2% 1.7% Other expenditures 7.0% 7.0% 7.1% 7.1% 7.1% 7.0% 6.9% 6.8% 6.8% 6.9% 5.3% 5.8% 5.9% 6.5% Total expenditures 17.7% 17.7% 17.7% 17.5% 17.4% 17.3% 17.1% 16.8% 16.7% 17.7% 11.1% 14.4% 15.8% 16.8% Surplus (+) / deficit (-) 3.2% 3.3% 3.6% 3.0% 3.0% 2.7% 2.5% 2.6% 2.6% 1.7% 9.8% 5.2% 3.8% 3.6% Internal financing -1.0% -1.0% -0.5% 0.3% 0.0% 0.3% 0.2% -0.1% -0.3% 0.5% -8.8% -3.1% -1.2% -1.3% External financing -2.2% -2.3% -3.1% -3.3% -3.0% -2.9% -2.7% -2.5% -2.3% -2.2% -1.0% -2.1% -2.6% -2.3% Overall financing -3.2% -3.3% -3.6% -3.0% -3.0% -2.7% -2.5% -2.6% -2.6% -1.7% -9.8% -5.2% -3.8% -3.6% % ; ** As compared with the figures registered in January through April of 2003, the budget revenues decreased by 0.6 p. p. of GDP in the respective period of 2004, while expenditures decreased by 0.9 p. p.

and budget surplus respectively increased by 0.3 p. p. of GDP. At the same time, without SST the budgetary revenues decreased by 0.6 p. p. of GDP and made 17.5 per cent of GDP. As before, VAT accounted for the major share of federal tax revenues 38.8 per cent of the total tax revenues, what is practically at the level observed in the respective period of 2003.

According to preliminary estimates, the cash execution of federal budget revenues made 20.6 per cent of GDP in January through May of 2004, what was by 0.7 p. p of GDP below the level observed Because of the estimated data on GDP, the indices may be subject to revision.

in the respective period of the preceding year. At the same time, the cash execution of expenditures made 16.8 per cent of GDP (17.7 per cent of GDP in January through May of 2004); therefore, in the first five months of this year, according to preliminary data, the surplus made 3.8 per cent of GDP.

According to the preliminary estimates of the Finance Ministry, in terms of fulfilled funding2 the expenditures of the federal budget in January through May of 2004 made 18.8 per cent of GDP (see Table 2), while in the respective period of 2003 this indicator was at 29.9 per cent of GDP. In January through May of 2004, the amount of revenues of the federal budget decreased by 0.7 p. p. of GDP in comparison with the figures registered in the respective months of 2003 and made 20.6 per cent of GDP. Therefore, the surplus of the federal budget in terms of fulfilled funding in January through May of 2004 increased by 0.4 p. p. in comparison with the figures registered in January through May of 2003 and made 1.8 per cent of GDP.

Table The monthly execution of the federal budget of the Russian Federation (in % GDP, fulfilled funding).

V03 VI03 VII03 VIII`03 IX`03 X`03 XI`03 XII`03 I`04 II`04 III`04 IV`04 VTotal expenditures 21.3% 20.6% 20.4% 20.0% 19.6% 19.5% 19.4% 19.4% 20.9% 20.2% 19.8% 20.4% 20.6% State administration 0.6% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.6% 0.7% 0.6% 0.6% 0.6% National defense 3.1% 3.0% 2.9% 2.8% 2.7% 2.8% 2.9% 2.7% 2.7% 4.0% 2.9% 3.7% 3.2% International activity 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 0.0% 0.2% 0.2% 0.3% 0.3% Judicial authority 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% Legal protection and security 2.2% 2.1% 2.0% 1.9% 1.9% 1.9% 1.9% 1.9% 2.1% 2.5% 2.3% 2.4% 2.3% Fundamental research 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.3% 0.4% 0.3% Services to national economy 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.1% 1.1% 0.5% 0.7% 0.8% 0.9% 0.9% Social services 2.7% 2.6% 2.5% 2.4% 2.3% 2.3% 2.4% 2.3% 2.5% 2.6% 2.4% 3.0% 2.9% Government debt servicing 2.1% 2.0% 1.8% 2.0% 2.0% 1.8% 1.7% 1.7% 1.1% 2.2% 2.2% 1.7% 1.5% Other expenditures 7.4% 7.3% 7.2% 7.2% 7.0% 6.9% 6.9% 7.0% 5.7% 6.8% 6.1% 6.6% 6.6% Total expenditures 19.9% 19.2% 18.8% 18.6% 18.3% 18.0% 18.1% 17.8% 15.6% 20.2% 18.0% 19.7% 18.8% Surplus (+) / deficit (-) 1.4% 1.3% 1.6% 1.3% 1.3% 1.5% 1.3% 1.6% 5.3% 0.0% 1.8% 0.7% 1.8% Table Actual tax revenues to the federal budget, according to the data of the MTC (in % of the data for January of 1999)3.

2002* I II III IV V VI VII VIII IX X XI XII 218,7% 187,1% 234,8% 277,8% 239,6% 218,0% 284,4% 246,5% 254,8% 299,7% 241,0% 250,2% 2003* I II III IV V VI VII VIII IX X XI XII 230,0% 229,2% 265,5% 280,4% 233,2% 240,0% 260,4% 242,6% 248,7% 265,6% 231,0% 247,9% 2004* I II III IV V 266,5% 204,4% 238,0% 261,4% 241,0% * .

According to the estimates of the Tax Ministry, in May of 2004 tax revenues of the federal budget made about Rb. 117.5 billion (without the single social tax). In real terms the revenues made 241.0 per cent of the level registered in January of 1999, while the respective indicator was at 233.2 per cent in April of 2003 and 239.6 per cent in April of 2002 (see Table 3).

The execution of the budget in terms of fulfilled (actual) financing is equal to the sum of the funds transferred to managers of budget funds, while the cash execution of the budget is equal to the sum of funds spent by managers of funds (i.e. without account of funds remained on their accounts).

It was decided to choose January of 1999 as the benchmark in order to render the comparison more reliable.

January of 1999 is not a remarkable date in terms of tax revenues.

At the same time, in May of 2004 the revenues generated by the single social tax made Rb. 34.9 billion. Thus, in April of 2004 the RF Tax Ministry transferred to the federal budget taxes and fees amounting to about Rb. 152.4 billion.

135% 125% 115% 105% 95% 85% 75% 65% Profit tax VAT 55% 45% 35% Fig. 1. Real tax arrears to the federal budget (in % to June of 1999) The dynamics of real arrears relating to major taxes since January of 2000 are presented in Fig. 1. On the whole, the trend towards a gradual decrease in the level of accumulated arrears observed since early 2001 to the second half of 2003 was replaced by the stabilization of the level of accumulated indebtedness as concerns both the profit tax, and VAT.

Table Execution of the RF consolidated budget (in % of GDP).

I II III IV V VI VII VIII IX X XI XII Taxes 16,2% 17,4% 18,1% 19,3% 19,7% 19,8% 19,8% 19,4% 18,8% 18,5% 18,6% 19,6% Revenues 18,8% 20,1% 21,2% 22,4% 23,0% 23,2% 23,2% 22,9% 22,3% 22,0% 22,0% 24,5% Expenditures 25,3% 23,8% 27,0% 28,1% 28,6% 29,5% 29,4% 28,6% 27,4% 26,9% 27,1% 29,5% Deficit -6,5% -3,7% -5,8% -5,7% -5,7% -6,3% -6,2% -5,7% -5,2% -5,0% -5,0% -5,1% I II III IV V VI VII VIII IX X XI XII Taxes 16,8% 16,6% 18,1% 19,9% 20,1% 20,5% 20,8% 20,8% 20,3% 20,2% 20,9% 22,1% Revenues 19,2% 18,9% 20,6% 22,7% 23,2% 23,9% 24,3% 24,5% 24,1% 24,0% 24,8% 26,3% Expenditures 18,6% 20,3% 23,6% 25,6% 26,6% 27,3% 27,4% 27,4% 26,7% 26,3% 26,7% 29,2% Deficit 0,6% -1,5% -3,1% -3,0% -3,4% -3,4% -3,1% -2,9% -2,7% -2,3% -1,9% -2,9% I II III IV V VI VII VIII I X XI XII Taxes 20,8% 21,4% 22,6% 24,2% 25,5% 25,4% 24,9% 24,8% 24,1% 23,7% 24,0% 24,6% Revenues 24,4% 24,8% 26,4% 28,2% 29,7% 29,7% 29,3% 29,2% 28,4% 28,0% 28,6% 30,0% Expenditures 19,6% 21,1% 23,8% 24,8% 25,2% 25,5% 22,3% 25,1% 24,5% 24,2% 24,6% 27,0% Deficit 4,7% 3,7% 2,6% 3,4% 4,5% 4,3% 7,0% 4,1% 3,9% 3,8% 4,0% 3,0% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar I II III IV V VI VII VIII I XI XII Taxes 22,7% 23,6% 23,9% 25,4% 26,4% 26,0% 26,1% 25,9% 25,0% 24,8% 25,4% 27,1% Revenues 25,9% 27,1% 27,4% 29,3% 30,5% 29,8% 29,9% 29,7% 28,3% 28,2% 28,8% 29,5% Expenditures 16,8% 22,8% 23,7% 24,7% 25,1% 25,3% 25,5% 25,6% 24,9% 24,7% 25,0% 25,6% Deficit 9,1% 4,2% 3,7% 4,7% 5,4% 4,4% 4,4% 4,1% 3,5% 3,5% 3,8% 3,9% I II III IV V VI VII VIII IX X XI XII Taxes 28,7% 23,6% 24,3% 26,5% 26,6% 25,9% 26,4% 25,9% 25,2% 25,4% 25,4% 25,5% Revenues 32,9% 31,3% 31,4% 33,6% 33,6% 32,7% 33,3% 32,5% 31,7% 32,0% 32,1% 32,1% Expenditures 18,3% 23,7% 26,0% 28,4% 28,4% 28,8% 29,1% 28,9% 28,4% 29,3% 29,7% 31,1% Deficit 14,6% 7,7% 5,4% 5,3% 5,2% 3,8% 4,2% 3,7% 3,3% 2,7% 2,4% 1,0% I II III IV V VI VII VIII IX X XI XII Taxes 25,6% 24,4% 25,6% 27,4% 27,1% 26,0% 26,1% 25,7% 5,0% 5,0% 5,1% 25,2% Revenues 32,0% 30,3% 31,5% 33,4% 33,6% 32,2% 32,2% 31,6% 0,9% 0,8% 0,7% 31,1% Expenditures 20,7% 25,3% 27,7% 28,8% 28,8% 28,6% 28,7% 28,5% 8,2% 7,8% 7,9% 29,7% Deficit 11,3% 5,0% 3,8% 4,5% 4,7% 3,5% 3,6% 3,1%,7%,0%,8% 1,4% I II III IV Taxes 25,6% 20,6% 21,8% 27,4% Revenues 30,6% 28,2% 29,8% 32,9% Expenditures 18,5% 22,8% 25,4% 27,3% Deficit 12,1% 5,4% 4,4% 5,6% * The revenues of the consolidated budget in January through April of 2004 made 32.9 per cent of GDP, including tax revenues (without SST) at 27.4 per cent of GDP (see Table 4). Expenditures of the consolidated budget decreased by 1.5 p. p. of GDP in comparison with the figures registered in January through April of 2003 and made 27.2 per cent of GDP. As on May 1, 2004, the surplus of the consolidated budget made 5.6 per cent of GDP, what is by 1.` p. p. of GDP above the level observed in the respective period of 2003.

S. Ponomarenko Taxation of organizations proceeds: key changes in the first six months of Taxation of proceeds of enterprises set forth by Article 25 of the RF Tax Code (Tax on profits of organizations) and certain articles of Section VII Special taxation treatments has underwent serious changes since 2004 (including the laws entering into force in 2004), especially as concerns taxation of agricultural producers. IET surveys discuss this issue separately, therefore, this paper should include only an analysis of changes relating to Articles 25, 26.2, and 26.3.

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