Russia sees two ways to cut payroll tax

Russian authorities see two ways of payroll tax cuts in 2012, both of which provide reducing payments for small and mid-sized business as a priority, Kremlin economic aide Arkady Dvorkovich told reporters on Wednesday.

“The first variant is maintaining the rate of 34 percent only for large businesses and reducing those rates which are currently set at 26 percent and 34 percent respectively for small industrial and public service business and for the rest of the businesses, especially for mid-sized, which today pays 34 percent tax,” Dvorkovich said following a meeting with Russian President Dmitry Medvedev on payroll tax policy.

In 2011, the government raised the tax, which companies pay to retirement funds, social insurance and obligatory medical insurance funds depending on the volume of salaries they pay, to 34 percent from 26 percent. Medvedev gave instructions to prepare proposals to cut the rate from 2012, as many companies cannot afford it.

According to the first variant, the tax rate for mid-sized business will be cut to the level close to 26 percent and to 16-10 percent for small and public service business, Dvorkovich said.

Under the second variant, the payroll tax is to be cut to 30 percent for mid-sized business, and to the level of about 16-20 percent for small industrial and public service business, he said.

If the government fails to find a simple scheme for the companies to confirm their right for the lower tax rates, it will approve the second variant, Dvorkovich said.

The question of how Russia will compensate for the shortfall of revenue from payroll tax cuts, expected at about 700-800 billion rubles, is to be discussed and the final decision has not been made yet, he added.

MOSCOW, June 8 (RIA Novosti) 

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