Russian software will write off taxes

Russian IT companies can receive an additional support tool: the President of the Russian Federation proposed to introduce a tax deduction for companies that purchase domestic software or electronics. This may stimulate demand, market participants admit, but it is not yet clear which products the measure will apply to. Lawyers believe that the initiative will require the creation of a more extensive registry of domestic solutions. Meanwhile, the already broad support of the IT industry has so far led to conflicting results. The authorities announce a serious growth in the segment, but analysts’ calculations based on the data of companies indicate the opposite. Experts believe that the full effect of state support will manifest itself already in 2023.

Vladimir Putin during messages to the federal assembly proposed to provide tax incentives to companies that buy domestic software and high-tech equipment, including those based on artificial intelligence.

The President clarified that “for every ruble invested by the company for the purchase of such products, it is necessary to issue a tax deduction of one and a half.”

“I ask the government to make a proposal on the list of such equipment, on the industries in which it is used, and on the procedure for granting benefits,” he added.

In 2022, a number of tax incentives and preferences for IT companies have already been introduced. Among them are a reduced income tax rate, exemption from VAT, a significant reduction in insurance premiums, a moratorium on tax audits, and a number of others. The new initiative also involves an increase in investments in domestic IT solutions, but using a different mechanism, through buyers who will be able to receive a tax deduction, explains Natalya Bunina, special adviser to Pen & Paper. Similar changes, she notes, were made to the Tax Code in July 2022, they allow taxpayers to apply a special multiplying factor to the depreciation rate of 3 in relation to purchased equipment included in the register of Russian radio-electronic products of the Ministry of Industry and Trade. The exemption also applies to software included in the unified register of the Russian software of the Ministry of Digital Development.

The new support measure may also apply to solutions from the register of domestic software of the Ministry of Digital Development and the register of Russian radio-electronic products of the Ministry of Industry and Trade, says Lyudmila Bogatyreva, head of the department of digital solutions at the Polilog agency.

Ms. Bunina believes that the initiative involves an increase in the list of Russian products and the creation of a new unified register of software and electronics, but “which ministry will be responsible is still unclear.”

A Kommersant source in the IT market raises questions about the mechanism for implementing the measure: “It is not clear whether customers will be able to receive deductions only from purchases of products included in current registers.” Now quite a lot of companies do not include developments in the registers, one of Kommersant’s interlocutors clarifies. Also, new benefits, in his opinion, may raise questions from the Ministry of Finance. “Based on the current economic situation, it will not be easy to justify new budget losses,” he said. In the Ministry of Finance, Kommersant was told that they were “working through the issue.” The Ministry of Industry and Trade and the Ministry of Digital Transformation did not respond to Kommersant.

Meanwhile, despite the extensive support measures already in place, in 2022 the IT market showed a drop in financial results and investments in fixed assets, follows from the preliminary report of SPARK-Interfax on the state of the sector, only for the first three quarters of 2022 own investments IT companies in development decreased by 12%, and the financial result (the difference between income and expenses for paying interest and taxes) in January-October 2022 decreased by 16%. But Deputy Prime Minister Dmitry Chernyshenko, on the contrary, on February 21 declared on improving the performance of IT companies. According to him, compared to 2021, their revenue increased by 35.3%, and the average salary – by 16.4%. The office of the Deputy Prime Minister did not answer “Kommersant”.

The Center for Strategic Research (CSR) agrees with the assessments of SPARK-Interfax. A significant factor is foreign policy risks that make it difficult for Russian companies to contact foreign partners, explains Alexei Galochkin, Deputy Head of the Department for Supporting the Processes of Provision of Public Services in Electronic Form of the Center for Strategic Development. The CSR specifies that at the end of 2022 and the beginning of 2023, the situation “has not changed radically, partly because the support measures for the industry have a delayed effect, but this year their effect will manifest itself and stimulate the growth of the industry’s profitability.”

The new mechanism proposed by the president will help companies that decide to purchase domestic solutions save money, says Mikhail Parkhomenko, an expert on taxation at SKB Kontur. “If an organization purchased software that is subject to benefits for 10 million rubles, then it will be able to take into account one and a half times more in expenses, that is, 15 million rubles. This means that you will have to pay less income tax – with an additional deduction in the amount of 5 million rubles. The savings for the buyer will be 20% of the cost, that is, 1 million rubles,” he says. The president’s decision can help distribute domestic products, says Daria Zubritskaya, director of communications for the Raketa digital platform. “However, both hardware and software must meet the tasks and have sufficient functionality, otherwise the costs of businesses, even when taking into account state support, may not pay off,” she notes.

Timofey Kornev, Tatyana Isakova, Yulia Tishina