The Ministry of Finance will inspect the tax benefits

The Ministry of Finance will evaluate the efficiency of tax benefits and preferences, when drafting the budget for the next financial year. The idea comes from the Chamber of Accounts, which believes that the growing number of benefits does not relate to their efficiency. The Chamber suggests amendments to the Budget Code in order to fix the new obligation of the financial institution.

The auditors of the Chamber of Accounts (CA) arrived at the idea to re-evaluate the system of the existing tax benefits as a result of the analysis of the reserves of the federal budget income, which was done by auditor Igor Vasiliev. In his report (made available to the “Izvestia”), he pointed out that the tax legislation still does not contain any clear definition of a benefit, but despite this the amount of benefits granted by the State keeps growing: it reached 3,7 billion roubles in 2011, which is 1.8 times more than in 2010.

In his report, I.Vasiliev explained: “Application of a number of tax benefits is inefficient, economically unjustified, increases the costs of tax administration, causes tax disputes and lawsuits”.

As an example of inefficient benefits, he gave the taxpayer’s right to a reduction of the taxable base in the current period by the amount of losses suffered during the previous period. There are also questions regarding the special economic areas, where a special procedure of income tax on resident organizations is in force and where there is a possibility to transfer the losses to the future tax periods. Besides, the Chamber of Accounts also points out that the problem of dishonest taxpayers persists: almost 3 billion roubles of tax benefits were incorrectly declared in 2011.

When the authorities grant benefits, they expect a stimulating effect from them. For example, granting preferences to new investors is common practice: they get benefits for the period of construction of the industry and of reaching the profitability. But the auditors of the CA say that benefits are rarely conditioned by future investments.

Dmitry Manuylov, Associate of the taxes and duties practice of the Law Firm "YUST", agrees that the income tax benefit functions poorly (in 2011, the total amount reached 162 billion roubles). Regional governments may reduce the rate of that tax for certain categories of taxpayers, which is mainly done for stimulating the development of business of public significance.

The interlocutor of “Izvestia” explained: “However, in practice, the granting of such benefits does not produce the expected results. A probable cause for this is the insufficiently clear requirements to the organizations, which request the tax reduction”. This enables the companies to economize on the tax payments and to contribute with nothing to the deeds of public need. This benefit should not be revoked completely but rather concrete requirements for the application of base reduction mechanisms should be included in the law before the list of potential benefit receivers.

As the CA told “Izvestia”, the audit institution suggested to the Ministry of Finance the idea to give motives for tax benefits and preferences last year, simultaneously sending the suggestions on the elaboration of the methods of efficiency evaluation to the Government, which, in its turn, charged the Ministry of Economic Development and the Ministry of Finance with them.

The Ministry of Economic Development has prepared a draft of the methods of monitoring and evaluation of the efficiency of tax benefits and submitted it to the Ministry of Finance for approbation. The latter will deliver the document to the Government, though it is not clear when.

The Ministry of Economic Development explained to “Izvestia”: “The approach, which the methods reflect, includes conduction of the experts’ evaluation, supplemented, if necessary, by calculations of the budget, social and economic (purpose) efficiency”. The methods will be used at the initial stage of evaluation of the benefits, when it is required to determine on a large scale what benefits may be classified as inefficient and which – as efficient. After that “assortment” is done, a more in-depth analysis may be conducted with the application of the point method, said the newspaper’s interlocutor in the Ministry. He stressed that direct economy of budget money is only one of several goals of the methods.

Optimization of the existing system of benefits and preferences could be an important reserve of additional budget income. For example, the Ministry of Finance calculates that revocation of the export duty benefit for the single Talakan oil and gas condensate deposit will bring the additional 35,7 billion roubles to the budget in 2012-2014.

Evgeny Fedorov, Deputy, member of “United Russia”, member of the State Duma Budget and Taxes Committee, says that all tax benefits granted to foreign companies are inefficient.

E.Fedorov is convinced: “Our tax system should support our Russian business, and they (foreign business companies – “Izvestia”) should rely on the support of their own states”.

He said that the CA suggestions are good and surmised that the lower chamber of the Parliament will very likely support them.

The source of the publication see here.