Putin instructed to give tax incentives to buyers of domestic IT solutions

Russian companies that purchase domestic IT solutions and products with artificial intelligence will be able to count on a reduction in income tax payments. The corresponding proposal was made by Russian President Vladimir Putin as part of his message to the Federal Assembly on February 21, 2023.

“Starting this year, Russian companies can reduce income tax payments if they purchase advanced domestic IT solutions and products using artificial intelligence,” the president said.

Moreover, these expenses of companies will be taken into account with an increased coefficient, one and a half times more than the actual costs, Putin added. “That is, for every ruble invested by the company in the purchase of such products, which I just mentioned, there is a tax deduction of one and a half rubles,” he explained.

Putin proposed extending the same benefit to the purchase of Russian high-tech equipment in general. “I ask the government to make proposals on the list of such equipment, on the industries in which it is used, and on the procedure for granting benefits,” the president concluded.

Some of the tax incentives are already in place for buyers of domestic software, notes Renat Lashin, executive director of the Association of Software Developers (ARPP) Domestic Soft. “Since 2020, a significant tax measure has been in effect for buyers of Russian software – Russian software products included in the Unified Register of Domestic Software are exempt from VAT,” he noted.

Also, one of the state development institutions, the Russian Fund for the Development of Information Technologies (RFRIT), for the past two years has provided a benefit to subsidize 50% of the cost of acquiring Russian software for small and medium-sized businesses, Lashin added. The expert did not rule out the continuation of this mechanism in 2023.

The general director of the Basis consortium, Arseniy Brykin, believes that the tax deduction announced by Putin will not drastically affect the profits of Russian companies, but “it will be a good signal that you need to buy Russian.” “This thesis is no longer about the benefits and effectiveness of the tax deduction, but a clear indication of what needs to be done in order to be in the wake of state policy,” he added.

Brykin believes that the president’s new initiative will once again raise the question of the adequacy of compiling the registers of the Ministry of Digital Development (including Russian software) and the Ministry of Industry and Trade (includes equipment) in which Russian products are located, and about the criteria by which products are classified as Russian. Putin’s instruction to “make proposals on the list” could mean that the existing registries will be abolished and a new one will be created instead, the top manager suggests. If it combines or synchronizes software and hardware systems (PAK) and software, it will be easier for those who are targeted by this tax benefit to navigate it, the expert is sure.

“As for assessing the impact of the announced income tax benefits, in general, any such benefit has a positive effect on the financial condition of companies, allowing to reduce the tax base. But the mechanism, how exactly it will be implemented, the conditions of application is not yet clear, ”said Mikhail Dobrovolsky, Deputy General Director of the IT developer SKB Kontur. The final calculations on the impact of this benefit on the IT sector can be carried out after the legislative definition of these provisions, he added.

At the same time, the demand for Russian software is already growing, say software developers interviewed by Vedomosti. “If in 2021 we carried out 58 pilot projects among large customers, then in 2022 we will have more than 200,” says Pavel Kalyakin, CEO of the Moyoffice developer. He connects this tendency with mass departures of foreign vendors from the Russian market. According to him, throughout the past year, the company received requests from potential customers about “an emergency transition from foreign software to Russian products.”

But the full positive effect of the departure of foreign players will be noticeable only after a while, the top manager continued. “On average, a complete migration of an IT infrastructure to new software takes 1-2 years, and before that, it takes about six months to conduct testing,” Kalyakin added.

Agrees with Kalyakin and Dobrovolsky: the average growth in sales of products of this company in 2019-2022. amounted to 18-20%, and in 2022 – 16.8%, up to 26.4 billion rubles. Further growth in the company is predicted at the level of 20-25% per year, added Dobrovolsky.

“Those who thought to “wait” on foreign solutions realized at the beginning of 2023 that the process of import substitution is inevitable. What is important, domestic developers are ready to meet the emerging demand,” summed up Lyudmila Bogatyreva, head of the digital solutions department of the developer of the Polycode software platform.

The Russian market of domestic IT solutions has significant potential, says Alexei Sinitsa, president of the developer of mobile applications, client-server solutions and web development IW Group. According to a recent study by another major developer Serchininform, only 3% of backbone enterprises and 1.7% of critical information infrastructure (CII) entities have fully completed the import substitution of system software (OS and DBMS), he recalled. 23% of respondents are in the process of transition. Most companies (53%) only plan it. “The support measure announced by the president will be able to at least double the rate of companies that are in the process of switching to domestic software, i.е. bring the import substitution rate to 50%,” Sinitsa believes.

Vedomosti sent inquiries to the Ministry of Digital Transformation and the Ministry of Industry and Trade.