Government still divided on payroll tax cut

The Russian authorities have not yet come to a unanimous decision on payroll tax cuts, Kremlin economic aide Arkady Dvorkovich said on Tuesday.

“Neither the president nor the government have formulated their position on the mechanism and the amount of social security tax cuts. Discussions are still underway,” Dvorkovich said.

Russian President Dmitry Medvedev is expected to hold a meeting later on Tuesday to discuss payroll tax policy.

Medvedev has recently suggested cutting the payroll tax to improve the investment climate in the country. In 2011, the government increased the payments which companies contribute to social funds depending on the level of their employees’ salaries to 34%, up from 26% in 2010.

In April, Dvorkovich estimated the possible loss of budget revenue from resetting the tax back at 26% at 400-500 billion rubles ($14.3-$17.8 bln). He said the government had expected to bring in 700-800 billion rubles as a result of raising the tax.

A group of the country’s leading economists recently presented a report to Russian Prime Minister Putin which said stimulating consumption to spur economic growth no longer worked in Russia, and the government should concentrate on stimulating production, local media reported recently.

Analysts say the 34% payroll tax may stifle small and medium business in Russia.

Dvorkovich has said that the shortfall of revenue from payroll tax cuts could be compensated by alcohol and tobacco excise duties hikes and partially by growing revenues from oil and gas exports.


MOSCOW, June 7 (RIA Novosti)

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