Summit News

Kremlin adviser calls for Russia VAT cut

MOSCOW (Reuters) - Russia has allocated sufficient funds to help the economy out of recession, but a cut in value added tax could provide future stimulus, the Kremlin’s top economic adviser Arkady Dvorkovich said on Tuesday.

The Kremlin's top economic aide Arkady Dvorkovich talks to Reuters in Moscow September 15, 2009. REUTERS/Denis Sinyakov

Within three to four years, the recession-hit economy should be growing at 5-6 percent in gross domestic product terms (GDP), Dvorkovich told Reuters Russia Investment Summit.

“This is not too ambitious,” Dvorkovich said. “We should not aim at a lower rate.”

He also proposed cutting the value added tax (VAT) rate to “no more” than 12 percent from a current 18 percent in 2011, to compensate for a planned rise in social security payments.

“It needs to have not just a mathematical impact but an impact on behavior, to remove the incentive of avoiding this tax,” he said, adding that a 12 percent tax should achieve this.

Russia’s economy has started showing miniscule signs that the economic decline is moderating, following a 10.1 percent contraction in GDP in the first half of the year.

The ruble has also shown some stability, after shedding more than a third of its value during the winter.

The currency should stay broadly stable, Dvorkovich said, adding that he does not see a “major danger” to the rouble’s rate unless crude oil falls below $40 a barrel.

On Tuesday, a barrel of the Urals, Russia’s top blend, traded at around $66.30, while the rouble closed broadly flat on the day at 37.21 versus a currency basket.

But the country has not lifted itself out of the crisis yet, Dvorkovich said. Data on Tuesday showed that industrial output recorded a monthly fall of 3.0 percent in August -- the first such decline in three months.

To ensure stable and sustainable growth some reforms were needed, including in Russia’s tax system, Dvorkovich said.

The tax issue continues to divide Russia’s officials in the time of crisis, just as it did during years of prosperity Russia enjoyed throughout most of the decade.

Finance Minister Alexei Kudrin has said frequently that tax cuts would undermine falling budget revenues. Dvorkovich and the Economy Minister Elvira Nabiullina have urged lower taxes to ease burdens on companies and stimulate investment in the real sector of the economy.

(Editing by David Cowell)

Additional reporting by Toni Vorobyova; writing by Lidia Kelly