Should we wait for the reduction of taxes?

In the December’s Address to the Federal Assembly Vladimir Putin has made it clear to the entire Russian business community that in spite of difficult macroeconomic conditions and bad external environment, the state does not intend to increase taxes, as well as payments in mandatory funds until 2019.

The prime-minister Dmitry Medvedev stated that the Government of Russia in its turn is ready to debate a proposal on reduction of this or that tax in Russia. In view of the decision of the Central Bank to raise its key rate up to 17%, the statements of two senior officials should reassure entrepreneurs, for many of whom the upcoming year will be very difficult. The predictability of the tax legislation is intended to compensate somewhat for the effect of a sharp rise in price of borrowed capital.

As of December 5th the Russian government has also received instruction from the president Vladimir Putin to establish a "supervisory holidays" from 1 January 2016. Within their frameworks it will be act a ban on audit of small businesses, in which "no significant violations of the requirements established by the legislation of the Russian Federation have been detected at the end of the preceding three years, except the cases of violations endangering the life and health of citizens". The instruction should be executed until the middle of July 2015.

On the same day, Putin instructed the government to prepare the "offshore amnesty" law until July 15. The Cabinet of Ministers will have to amend the law to allow the "one-time tax and criminal liability relief for Russian officials under the condition of the return of Russian-source income previously moved out by the mentioned persons in foreign jurisdictions without paying the appropriate taxes".

Will the Government Short-Term Bonds market return?

The Ministry of Finance of the Russian Federation considers the possibility of returning to the market of Government Short-Term Bonds. This was stated by Deputy Finance Minister Tatyana Nesterenko.

According to her words, the REPO (repurchase agreement) overnight instrument (issuing of available budget funds for one night) is creating. The attraction of additional liquidity mechanism is developing to reduce the risks of non fulfilment of current liabilities in 2015, which, obviously, will be difficult for the economy.

Government Short-Term Bonds were widely used in the market in 1990. They were one of key instruments of current government activity financing. In August 1998 the inability to meet obligations on Government Short-Term Bonds was the reason of Russian default. In 2005 it was decided to stop using Government Short-Term Bonds as such instrument was no longer necessary.

Time will show how reasonable is to come back to the market of short budget money in the conditions of macroeconomic uncertainty, strong volatility on currency market, the pressure of penalties and decreasing oil prices. However the government probably shows with this step that there might be problems with fulfilment of current liabilities next year.