UPDATE: Ministry calls for compensating IT firms for VAT exemptions

(Adds expert comments in last 3 paragraphs)

MOSCOW, Jun 25 (PRIME) – The Digital Development Ministry has suggested regularly allocating financial assistance to Russia’s software developers to save their financial footing if the value-added tax (VAT) exemptions are cancelled for software sales, Deputy Minister Maxim Parshin told PRIME on Thursday.

The ministry’s measures submitted to the government for the IT industry support contained steps to cut the payroll tax, the corporate profit tax, and introduce other benefits for certified IT firms, Parshin said.

President Vladimir Putin offered on Tuesday to make a tax maneuver in the IT industry that includes a decrease in the payroll tax rate to 7.6% from the current 14% and the corporate profit tax rate to 3% from the current 20%.

Media reported that the ministry suggested returning VAT on software sales in order to offset the shortfall in budget incomes from the tax maneuver. The returned tax could bring 42.5 billion rubles to the budget in 2021.

“To compensate for the shortfall in the federal budget’s incomes in case of introduction of the benefits we offered to terminate zero VAT on sale of the rights to use software on the base of a license agreement,” Parshin said.

“For developers of Russian software products, provided, among others, via clouds, the Digital Development Ministry of Russia offered to give necessary financial assistance on a regular basis to avoid worsening of parameters of their financial and economic activity if the VAT benefits are cancelled.”

Software products association Russian Software Executive Director Renat Lashin said, “The proposed exemptions on payroll payments and the income tax may not cover the losses from cancellation of the VAT exemptions. As the largest industry association, we hope the proposal of the Digital Development Ministry will not be included in the all-Russian economic plan.”

VAT is a tax that directly impacts the prices of goods and services, and the burden from a higher tax will fully lie on end consumers as the prices of licenses for them will soar, he said.

“It’s of high importance now not to reject the existing benefit as incomes of the public and business have already fallen because of the pandemic and the lockdown. The IT firms selling software have already had delays in payments and signing of contracts by customers. Large clients – the oil industry, state companies and state entities – cut their IT budgets by more than 20%,” Lashin said.

(68.8376 rubles – U.S. $1)

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