The Zero Rate of the Profit Tax will Give a Respite to the Russian Agro-Industrial Complex

Earlier, agricultural producers looked with apprehension into 2013 when the profit tax was expected to be introduced. That measure was postponed for many years. At present, a potential threat of Rb 20bn being collected fr om agricultural producers has been removed. With the termless zero tax rate approved, that issue is off the agenda now.

Also, the law provides for an exemption from payment of the individual income tax on grants and subsidies received from the budget by heads of peasant and farm households. Until now, the government granted farmers subsidies from which an income tax was charged, that is, the government provided funds, but later took them back in the form of taxes. Now, a decision has been passed to give up that practice.

Zero tax rates to agricultural producers do not run counter to the principles of the WTO. However, if taxes were charged the situation of Russian farmers would change for the worse a great deal. The WTO demands that direct subsidies to farmers - as regards measures which distort the market -- should be gradually reduced from $9bn to $4.4bn by 2018. Also, import duties will be gradually reduced and quotas on import products lifted. Russia imports a large volume of livestock products. Opening up of the Russian market will result in a situation wh ere a gap between prices at border and domestic prices becomes narrow. For example, at present domestic purchasing prices on pork amount to Rb 107 per kilo against the price of a little over Rb 60 per kilo at which pork is imported in Russia.

For understandable reasons, Russia cannot reduce domestic prices because such a move will destroy Russian farmers whose incomes will fall considerably. The profit tax would have made the unstable situation of Russian farmers even much worse.

V.Ya. Uzun, Doctor of Economics, Leading Researcher of the Department of Agricultural Policy