The Ministry of Finance has entered the zone of disagreement

As Kommersant has learned, the Ministry of Finance’s bill on “adjusting” tax benefits under preferential regimes has raised objections—the Ministry of Economy, as well as some regions where there are preferential tax zones, do not agree with it. Opponents of the Ministry of Finance fear a decrease in the investment attractiveness of such zones. The financial department says that work has begun to finalize the bill, insisting, however, on preserving its basic principles.

The Ministry of Finance’s initiative to adjust the regulation of preferential regimes – special economic zones (SEZs), priority development areas and others – has caused objections from some regions. Also, the amendments are not supported by the Ministry of Economy.

Let us explain that the Ministry of Finance has developed a draft amendment to the Tax Code, proposing to limit for new residents who will receive such status after January 1, 2024, the amount of tax benefits (usually we are talking about taxes on profit, property and land) to the amount of actual expenses on capital investments and R&D. The rationale for this approach is the desire to stimulate increased investment and the creation of new industries. Also among the proposals of the Ministry of Finance is the introduction of a requirement for residents to submit annual financial statements to the Federal Tax Service in order to maintain the application of benefits. It is explained that this is necessary in order to “minimize the share of residents with zero reporting” and make it possible to apply benefits only if controlled indicators are met.

As the Ministry of Finance explained to Kommersant, the idea of ​​the bill is to maintain a balance of interests of the state and residents: benefits “should not be used to increase dividends and personal enrichment, but should be used to create new jobs, investments, and R&D.”

The Ministry of Economy does not agree with this “adjustment”, as follows from the department’s response to the project (available to Kommersant). They believe that the proposed mechanism “contradicts the logic of operation and the goals of creating preregimes” and does not take into account the specifics of the implementation of projects that these modes are designed to support. Preferential zones are created to solve various problems (from attracting investment in areas with a low level of socio-economic development to supporting priority sectors of regional development), and stimulating capital investment “in itself is not an end in itself” of their work, the department notes. They explain that the implementation of projects, including in priority industries, does not always involve significant investments or expenditures on R&D – for example, in software development. The department also fears an increase in the administrative burden on business.

The regions have similar claims. Thus, the Kaliningrad region sent an appeal to the president (Kommersant has it) with a request to instruct the government to further study the issue of the feasibility of developing a bill in the presented form. Regional authorities note that control over the implementation of investment projects and the achievement of target indicators has already been provided, and changes in the conditions of sanctions are unjustified and will lead to a decrease in investment activity in regions where preferential regimes operate – especially where they are “compensatory” (Far East, Kaliningrad region, Crimea).

The risks of reducing the attractiveness of territories is a common argument among the regions that spoke out. In addition, the Ministry of Finance of the Kaluga Region believes that the project will greatly complicate the possibility of applying benefits. The Moscow Investment Policy Department points out that the proposals “do not take into account the factors shaping the investment cycle of projects” depending on the type of product: for goods with a low amount of added value, their placement in the SEZ will become inappropriate due to the “lack of benefits and an increase in administrative burden for emerging companies and technologies”.

The Ministry of Finance told Kommersant that they are considering the comments received – meetings are being held, and the project itself is being finalized. However, the basic conditions for using benefits “must be preserved,” the department noted. They believe that the initiative will not reduce the attractiveness of pre-regimes, since “it does not provide for the abolition or adjustment of reduced rates and their validity periods: for bona fide residents who fulfill the conditions and whose investments exceed the amount of benefits, the volume of tax preferences will not be reduced.” At the same time, limiting benefits to the amount of actual investments will not apply to industries in which “there is no need for significant investments,” the department explained.

Evgenia Kryuchkova