High-quality recipient: Russia will evaluate the effectiveness of tax incentives for manufacturers

Mikhail Mishustin, Chairman of the Government of the Russian Federation, instructed to assess how effective the existing tax incentives are for manufacturers. The task arose following the results of the Prime Minister's report to the State Duma on the work of the government. The deputies called for not just attaching a list of tax benefits and their cost, but at the same time evaluating their effectiveness. The lower house also proposed to limit the duration of such exemptions. Izvestia investigated which benefits were effective and which were lacking.

Inventory of benefits

In June 2024, the Accounting Chamber reported on a study of 145 tax expenditures on three types of taxes (value added, corporate profits and mining), of which 134 were incentive and 11 were technical, Albert Koroev, head of the Stock market Experts department at BCS World Investments, reminded Izvestia.

Photo: Global Look Press/Sergey Elagin

— As a result, less than a third of tax expenditures were recognized as effective in all elements: 12 out of 40 for 2020 and 17 out of 56 for 2021. For the remaining tax expenditures, either negative indicators were noted according to various assessment criteria, or their assessment was not carried out according to all criteria due to the lack of fiscal characteristics. However, conclusions have mostly been drawn about the effectiveness of tax expenditures and proposals have been sent to the Russian Ministry of Finance to preserve benefits," the expert said.

In particular, tax benefits for Russian organizations of the radioelectronic industry were extended in the fall.

The so-called tax expenditures, that is, in fact, taxes that are not collected due to the existence of preferential regimes, amount to about 6% of GDP per year, Dmitry Kulikov, senior director of the ACRA group of sovereign and regional ratings, clarified in an interview with Izvestia. Of these, slightly more than a third relate to oil and gas taxes, and almost equally to oil and gas production. In the non-oil and gas sector, the majority is related to VAT benefits.

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Areas of support

As practice shows, benefits for paying federal taxes and insurance premiums (a number of tax regimes) remain the most effective, according to Oleg Filippov, Director of programs at the Institute of Management of the Presidential Academy. Therefore, the analysis will affect not only the first part of the Tax Code, but also the second, which reflects specific taxes, taxpayers and preferential rates.

Photo: IZVESTIA/Sergey Lantyukhov

"An important component will also be the further elaboration of support for investment projects for the production of industrial products, the implementation of which has been launched since 2022," the expert said in an interview with Izvestia. — We are talking about import substitution products, which have become urgently needed due to the sanctions imposed and the withdrawal of foreign manufacturers and products from the country. In this case, these are government support programs, including the purchase of products, as well as the provision of low-interest (interest-free) loans and industrial space for production.

The term "inventory of tax benefits", in his opinion, rather implies the rejection of ineffective tools and focusing on the main areas.

— There are many reasons for that. First, as the IT sector shows, the Ministry of Finance and the government are gradually abandoning the cycle of providing unprecedented benefits and waivers from inspections and switching to a sustainable development regime. In other words, the policy formed in 2022 is gradually changing. Secondly, due to the sharp strengthening of the ruble against the dollar, as well as a decrease in federal budget revenues from oil and gas revenues caused by a decrease in oil export prices, government authorities are forced to abandon a number of benefits and preferences and switch to supporting vital projects," Oleg Filippov emphasized.

Photo: IZVESTIA/Artem Korotaev

Thirdly, the meaning of benefits is their temporary nature, the Ministry of Finance will not finance chronically unprofitable projects forever, especially since most of them have already felt the ground in three years and have begun to actively develop, overcoming the limits of small and medium—sized organizations, he noted. As a result, it is highly likely that an "inventory of tax benefits" will, at best, lead to the abandonment of most benefits and the abandonment of certain ineffective measures. But a more radical reduction in preferential tax regimes or an increase in tax rates is also possible. An example is the change in tax rates under the simplified taxation system (STS) from January 1, 2025.

— There have been no such major changes in the direction of higher taxation for 25 years. Most organizations need to treat these innovations in the field of changing the tax climate in Russia with caution, and they should not get their hopes up in advance," Oleg Filippov is convinced.

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Promising measures

Currently, the tax legislation already provides for a set of measures aimed at stimulating investment activity, Artur Leer, Vice president of the Association of Exporters and Importers, said in an interview with Izvestia. Some of the benefits are implemented within the framework of agreements between the state and the taxpayer — these include special economic zones, priority development territories, regional investment projects, special investment contracts, agreements on the protection and promotion of investments, as well as participation in initiatives such as the Skolkovo Investment Center.

Photo: TASS/Vasily Alexandrov

There are also non-contractual forms of support provided when certain conditions are met, the expert recalled. These include, in particular, federal and regional investment deductions, accelerated depreciation of Russian-made high-tech products, as well as preferential tax regimes for IT companies. Starting in 2025, certain types of R&D expenses can be accounted for in the tax base with an increasing coefficient of 2. This underlines the priority of technological development and innovation support. Against this background, it is advisable to expand support measures in the direction of human capital development.

— Along with the means of production, qualified personnel play a key role in any enterprise. In this regard, it is worth considering the possibility of tax incentives to improve the skills of employees, especially in manufacturing enterprises. One of the possible tools is to account for personnel training costs with an increasing factor of 2," says Arthur Leer.

Photo: TASS/Korotchenko Maxim

This, in his opinion, will stimulate businesses to invest more actively in developing employee competencies and increase the overall efficiency of enterprises. It is also important to continue implementing existing support programs. Just as measures have been formulated for the IT sector, it is necessary to identify priority sectors, including based on data from the Ministry of Industry and Trade, and develop targeted tax instruments for them. This approach will allow for targeted economic stimulation and increased investment activity in key sectors.

Izvestia sent requests to the Ministry of Energy, the Federal Tax Service and the Ministry of Finance, but no responses had been received at the time of publication.