Benefits are confused in terms – Newspaper Kommersant No. 11 (7456) of 01/23/2023

Participants in the IT market proposed to the Ministry of Digital Development to make a 0% income tax rate for IT companies, which is valid until 2024 under new benefits, indefinitely, or to clearly fix the permanent return of the 3% rate. Companies fear that after the expiration of the benefits, the rate will return to the level of 2020 and amount to 20%. Lawyers believe that companies will be able to return to the 3% rate from 2025 without special measures. But even in this case, market participants emphasize, the increase in taxes will make it difficult to import substitution projects for foreign software and equipment.

Kommersant’s sources in the government said that at the end of 2022, the largest Russian software development associations discussed with the Deputy Head of the Ministry of Digital Development Maxim Parshin the extension of the preferential income tax rate for accredited IT companies.

In the summer of 2020, as part of another package of measures to support the IT industry, the government adopted a bill that reduced the income tax for accredited IT companies from 20% to 3%. The document did not specify the expiration date of the benefit. In July 2022, the President approved the amendments, according to which the tax was 0% until 2024.

At a meeting at the Ministry of Digital Development, industry participants explained that limiting the validity of the rate “creates uncertainty for many companies in the segment,” says Renat Lashin, executive director of the Domestic Soft Association. “Representatives of the associations proposed to consider the possibility of either making the zero rate of income tax indefinite, or, if this is not possible, raising the tax rate to 3%, but also leaving it indefinite,” he notes.

President of NP “Russoft” Valentin Makarov also considers it optimal to return to the procedure for granting income tax benefits with a rate of 3% and an indefinite effect of benefits. “But this is one of the proposals, there is no solution yet,” he said. According to another meeting participant, the industry fears that after the end of 2024, the tax rate for IT companies will return to the level of 20%. In Mintsifra “Kommersant” did not answer.

Advisor to BGP Litigation Denis Savin considers the fears unjustified: “The reduced rates adopted in 2020 continue to operate. From 2025, IT companies will no longer be able to take advantage of the zero income tax rate, but will return to 3%, unless, of course, legislators decide to extend the additional benefit.”

The flow of funds to the budgets of IT companies is uneven, and the main payments fall on the third and fourth quarters of the year, so companies need to create a financial reserve for at least six months, says Alexei Smirnov, Chairman of the Board of Directors of Basalt SPO. “If the tax rate returns to the level of 20% or even 3%, the situation in the industry will deteriorate significantly, and the attractiveness of the Russian jurisdiction for business will decrease,” he notes. This threatens to reduce the budget of IT companies for wages to employees and their layoffs, Mr. Smirnov believes.

The return of the tax rate for IT companies may “push them to move to countries with a more comfortable tax regime, such as Georgia, Armenia or the UAE,” Nikolai Komlev, chairman of the council of the Russian Chamber of Commerce and Industry for the development of the digital economy, believes.

The increase in the tax rate will affect the ability to invest in new developments, says Zecurion CEO Alexei Raevsky. It will also affect projects within the “roadmaps” for the development of new system-wide and industrial software and the development of software and hardware systems, adds Ilya Sivtsev, CEO of Astra Group of Companies (projects approved by the government will be funded by developers; see Kommersant dated 13 December 2022).

“Funding of development institutions is not enough for such a number of projects, the developers will invest their own funds,” explains Mr. Sivtsev. “If the income tax is returned, this will become an additional burden on the cash flow of companies and reduce the amount of investment in product development.”

Timofey Kornev, Nikita Korolyov