RUSSIAN ECONOMY IN trends and outlooks Excises on oil products will be paid by their producer at the moment of realiza tion of the oil products (Subitem 1 of Item 1 of Article 182 of the RF TC), as well as in other general cases listed in item 1 of Article 182 of the RF TC, which are as fol lows:
- the transfer of excisable goods for processing and the return of excisable goods manufactured from a customer’s raw materials (Subitem 12 and Subitem 7 of Item 1 of Article 182 of the RF TC);
- the transfer, within the structure of one organization, of manufactured excisable goods for further production of non excisable goods (with the exception of transfer of straignt run petrol for further manufacture of petrochemical prod ucts within the structure of an organization holding a certificate for carrying out transactions in straignt run petrol) (Subitem 8 of Item 1 of Article 182 of the RF TC);
- the transfer of manufactured excisable goods for an organization’s own needs and as a contribution in charter capital, or a contribution under a simple part nership agreement (Subitem 9 and 10 of Item 1 of Article 182 of the RF TC);
- the transfer of manufactured excisable goods at the withdrawal of a participant from an organization;
- the separation of the share of a participant in a simple partnership agreement (Subitem 11 of Item 1 of Article 182 of the RF TC).
When concluding transactions with straignt run petrol, the payers of excises will be recognized as producers of straignt run petrol at the moment of its realiza tion (in accordance with Subitem 1 of Item 1 of Article 182 of the RF TC) and as the persons carrying out the production of petrochemical products from straignt run petrol at the moment of its receipt (in accordance with newly introduced Subitem 21 of Item 1 of Article 182 of the RF TC). The newly adopted Article 179.3 of the RF TC envisages the issue of certificates for carrying out transactions with straignt run petrol to the following agents:
а) to persons engaged in the production of straignt run petrol, including from customer’s raw materials, – a certificates for the production of straignt run petrol;
б) to persons engaged in the production of petrochemical products, when straignt run petrol serves as raw material, – a certificates for the processing of straignt run petrol.
Exports of oil products are exempt from excises (Subitem 4 of Item 1 of Article 183 of the RF TC).
Besides, among the changes introduced in Chapter 22 “Excises” of the RF TC the elimination of tax posts at the payers of excises carrying out transactions with oil products (from 1 January 2007 Article 197.1 of the RF TC is to be deemed null and void).
Other taxation – related changes introduced to Part II of the RF TC Some changes were also made to Chapter 24 “The single social tax” in Part II of the RF TC. Special lowered rates of the tax single social tax (Article 241 of the RF TC) are established for taxpayers – organizations operating in the field of informa Annexs tion technologies, with the exception of taxpayers with the status of a resident of a special zone for technical development. These are recognized as Russian organi zations carrying out the development and sale of software and databases on mate rial carriers or in electronic form through communications channels, and (or) ren dering services (or performing works) relating to the development, adaptation and modification, as well as installment, testing and maintenance of software and data bases. An organization operating in the field of information technologies will be able to apply lower rates when complying with certain terms established by Item 8 of Ar ticle 241 of the RF TC:
- an organization must have State accreditation issued by the RF Ministry of In formation and Communications;
- the incomes from information activity in the field of information technologies for the first 9 months of the year preceding the transfer to lowered rates must con stitute no less than 90 % of all the incomes of an organization, where 70 % must represent incomes from foreign persons operating outside the RF territory;
- the number of staff of an organization in the first 9 months of the year preceding the transfer to the payment of SST at the lowered rates must be no less than persons.
By the changes introduced into Chapter 25 “The tax on profit of organizations” it is determined that the operating in the field of information technologies enjoy the right not to apply the established procedure for depreciation of electronic appli ances.
The most serious changes made to Chapter 25 are relating to the abolition of restrictions on carrying forward the losses of past years (Article 283 of the RF TC).
Thus, in 2005 an organization could carry forward the losses incurred during past periods only within the limits of 30 % of the tax base of a current year. From this limit was equal to 50 % of profit received in a year. However, from the year 2007 there will be no more such restrictions. At the same time, although the norm concerning the abolition of the maximum size of losses carried forward is to come into force from 1 January 2007, the 50 % limit will be applied to the profit of being formed early in the next year.
One more change relating to the profits tax involves a marked simplification, from the year 2007 onward, of the procedure for recognizing incomes from re search and development (Article 262 of the RF TC). Thus, from 2006 the costs of research and development that have yielded positive results may be included in costs during 2 years (in 2005 this period was 3 years). Also from 2006 another re striction – that on the recognition of the costs of research and development that yielded no results – was abolished. In particular, prior to 2005 costs could be charged in the amount of no more than 70 % of the actual costs, and from the year 2006 onward they are to be charged in full. In this connection, the period during which the costs of research and development that yielded no results are to be evenly distributed in order to diminish the tax base should be 3 years. From 2007 it will become possible to evenly charge such expenditures to costs during one year, irrespective of whether any positive results have actually been obtained or not.
RUSSIAN ECONOMY IN trends and outlooks Autonomous institution do not record as their income the property received by decision of bodies of executive authority (Subitem 8 of Item 1 of Article 251 of the RF TC) or funding allocated to them in the form of subsidies and subventions (Subitem 14 of Item 1 of Article 251 of the RF TC).
Some of the changes introduced in Chapter 26 “Tax on the extraction of min eral resources”, alongside those that have already been discussed here, are to come into force from January 2007. Thus, the procedure for determining the tax base for the extraction of dehydrated, desalted and stabilized oil is established.
The norm concerning the taxation of mineral resources at the rate of 0 % (0 rou bles) in the part relating to standard losses is augmented. It is established that of at the moment of the payment of a tax a taxpayer has no approved standard losses for the next calendar year, until the approval of the aforesaid standards the previously approves standards should be applied, and for newly developed deposits – the standard losses established by a technical project4.
Beside, changes were made to Chapters 26.1 “The system of taxation for producers of agricultural goods” (the single agricultural tax)” and 26.3 “The system of taxation in the form of a single tax on presumptive income for some types of ac tivity” in Part II of the RF Tax Code. These are aimed at improving the application of the system of taxation in the form of a single agricultural tax (and are also with force from 1 January 2007).
Thus, the norm determining the range of the payers of the single agricultural tax is augmented by the information on the types of agricultural products for pur poses of applying Chapter 26.1 of the RF TC. It is established that no right for a switchover to the payment of the single agricultural tax can be enjoyed by the or ganizations and individual entrepreneurs operating in the sphere of gambling busi ness; those producing excisable goods; organizations with affiliations (or represen tative offices); and budget funded institutions.
The norms determining the procedure for a switchover to the single agricul tural tax of newly created organizations or newly registered individual entrepre neurs, as well as the provisions determining the procedure for the discontinuation of the right to apply the single agricultural tax have been made more precise.
Significant changes were made to the norms relating to the procedure for de termining and recognizing the incomes and expenditures when the single agricul tural tax is applied. In particular, the list of items of expenditure that can be taken into account when determining the object of taxation has been expanded. These changes also apply to the legal relations that have arisen since 1 January 2006. Be sides, the provisions of Chapter 26.1 concerning the procedure for the calculation and payment of the single agricultural tax and on the submitting of a tax declaration have been made more precise. Now it is envisaged that both organizations and in dividual entrepreneurs will be submitting their declarations in respect to the pay ment of the single agricultural tax within the same timelines.
For more details concerning the changes introduced in the sphere of taxation of the extraction of mineral resources, see the section “The oil and gas sector in 2006”.
Annexs It is not allowed to apply the taxation system in the form of the single tax on presumptive income to operations in retail trade and public catering, if these op erations are carried out by those organizations and individual entrepreneurs who have switched over to the payment of the single agricultural tax, when these tax payerи sell through their retail and public catering outlets their own agricultural products.
Simultaneously, some changes were made to Federal Law of 11 November 2003, No 147 FZ, “On making changes to Chapter 26.1 of Part II of the Tax Code of the Russian Federation and some other legislative acts of the Russian Federation”, which are also to come into force from 1 January 2007.
Federal Law of 6 August 2001, No 110 FZ, has also been changed, and these changes are to come into force after the expiry of one month from the day of the official publication of this document and should be applied to the legal relations that have arisen from 1 January 2006. The changes are concerned with the periods for applying the various rates of the tax on profit of organizations by those produc ers of agricultural goods who have not switched over to the system of taxation in the form of the single agricultural tax, in the part relating to the sale of the agricul tural goods produced by them, as well as the sale of the agricultural goods pro duced and processed by these organizations.
The changes introduced into Chapter 30 of the RF TC envisage some addi tional conditions for applying the exemption from the tax on property of organiza tions to residents of a special economic zone (SEZ). From 1 January 2007, in order to become exempt from taxation, property must not only be kept in an account of an organization – resident of a SEZ, but also be acquired or created for purposes of operating in the territory of a SEZ and be located in its territory (Item 17 of Article 381 of the RF TC). Only on condition of complying with these requirements an or ganization – resident of a SEZ will enjoy the right to an exemption from the tax in re spect of its property.
Concerning the land tax (Chapter 31 of the RF TC) it has been specified that the land tax should not be levied on all the plots of land placed at the disposal of a resident of a SEZ (as it previously followed from Item 9 of Article 395 of the RF TC), but only on those located within the territory of a special economic zone.
Changes in the sphere of civil and labor legislation Reform of state and municipal institutions. Autonomous institutions as a new type of not for profit organizations One of the most important areas of reforming not for profit organizations is the transition to the competition based principles of allocating budget funding within those sectors of the budgetary sphere where it can be possible. This primar ily applies to the implementation of different forms of competition based (or per formance oriented) financing instead of financing by estimate, which is designed for the upkeep of a budget funded institution.
RUSSIAN ECONOMY IN trends and outlooks In recent years the procedure for planning and spending the resources allo cated to budget funded institutions has already been toughened, and they were switched over to the cash services provided by the Federal Treasury, which has yielded certain results in terms of preventing non targeted spending of budget funds, while at the same time has complicated the operation of many (and espe cially highly performing) budget funded organizations.
It appears that the issues relating to improving the efficiency of budget spend ing must be resolved (whenever possible, which is true for a rather wide range of sectors of the budget funded sphere) through introducing competition for budget funding among budget funded institutions, while truly public control over state in stitutions should be developed not through consolidating “the vertical of power”, but through developing civil society, and in particular through introducing the pro cedure of reporting by the directors of such institutions to the specially created public councils of these organizations.
Presently, the following most important goals of reforming budget funded in stitutions can be pointed out:
- the switchover from by estimate financing, which is characterized by low per formance and high costs, to performance oriented budgeting;
- the liquidation of subsidiary responsibility of the budgetа for the activity of budget funded institutions;
- the creation of a mechanism for the co financing, by the population, of socially important services, in order to prevent shadowy transactions in the form of brib ing of certain employees of budget funded institutions;
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