Borrow government money, but let me invest private money – Newspaper Kommersant No. 35 (7480) dated 03/01/2023

The White House is reforming the mechanism of investment tax deductions (INV) for the regional part of the income tax: it did not give an increase in investment and is of no interest to either the center, or the regions, or investors, the government admits. The authorities want to unify the rules for granting deductions in all regions, linking them to the tax return on investment projects. It is proposed to cover the budget losses of the regions due to INV not with subsidies, but with interest-free budget loans with a return after the launch of the project. The White House expects that this approach will support initiatives that can close the deficits that have arisen after the departure of foreign suppliers.

The White House presented the parameters of the new INV mechanism – the reform of the investment incentive system in the regions was discussed yesterday at a meeting of the State Council commissions in the areas of “Investment” and “Economics and Finance” with the participation of First Deputy Prime Minister Andrei Belousov. This was reported to Kommersant by a source who was present there and confirmed in the secretariat of the First Deputy Prime Minister.

Let us remind you that INV allows companies to reduce the amount of income tax paid to the budget of a constituent entity of the Russian Federation by up to 90% of the volume of investments (the volume and conditions depend on the region). But due to the reluctance to increase spending, some regions did not implement INV, therefore, from 2021, the government will compensate them for up to two-thirds of the costs with the confirmed implementation of the regional investment standard (see Kommersant dated November 8, 2022). However, the results of the implementation of the current INV the White House are not impressive: in 2022, 19 regions received subsidies, but “the volume of INV itself amounted to 27 billion rubles. with an investment of 30 trillion rubles. This suggests that there is no demand for the mechanism. The task is to make sure that the ruble of financial support gives 20 rubles. investments, ”his representative conveyed to Kommersant the words of Andrei Belousov. The mechanism has drawbacks for all stakeholders, the government believes, the return on investment is minimal, including due to the lack of linkage to investment projects. In practice, INV is aimed at supporting the current activities of companies, regardless of the industry, profitability and return on investment ruble. Investors, on the other hand, cannot predict the return on investments – the regions themselves can limit the possibility of carrying forward the balance of the INV to future periods, the amount of capital expenditures included in the INV and the maximum level of deduction.

The White House proposes to immediately reform both the rules for granting the deduction itself and the mechanism for compensating for shortfalls in incomes of the regions. Instead of direct subsidies, a mechanism of long-term stimulating budget loans (SBK) will be created – one of the structures under discussion involves the receipt of such loans by the constituent entities of the Russian Federation at 3%, but before the investment project reaches budget neutrality (three to four years), the federal budget compensates the rate, turning the loan into interest-free , and after the launch of the project, the region will pay off the debt through tax revenues. As explained to “Kommersant” in the Ministry of Economy, the parameters of the SBC will be further refined.

The First Deputy Prime Minister assured that the mechanism for lending to the regions would be worked out in such a way that the subjects would not fall into a debt trap in the event of an investment project failure. The INV itself must be significant in order for the mechanism to be in demand; the deduction will be provided to companies implementing investment projects included in the unified register of the treasury and having entered into an agreement on mutual obligations with the region. The ratio between the tax refund and investments will be 20-30% of the volume of capital investments, the period of application of such a “project” deduction will be five years, the income tax rate will be the same (now it can vary from 0% to 17%). The rules for issuing an INV will be unified in all regions and enshrined in the Tax Code. It is assumed that the updated deduction will be focused on the task of adapting the economy to new conditions, and not on supporting industries – the de facto government wants to redirect investments to launch projects that can close the deficits that have arisen in connection with the military operation in Ukraine, sanctions and the departure of foreign suppliers and technologies from the Russian Federation. One of the mechanisms under discussion is a taxonomy of technological sovereignty, which would allow such projects to be given priority. However, the new mechanism will still be detailed, while it is assumed that the current INV design will remain until the end of 2024.

Diana Galieva