Yesterday, the Duma adopted in the first reading amendments to the second part of the Tax Code, eliminating the draconian procedure for taxing citizens' transactions with securities. But the deputies were late: the likelihood that the law will be adopted before the New Year is extremely low. This threatens the market with serious shocks: at the end of the year, the outflow of money from "physicals" from the market will begin, prices will fall, and many small brokerage firms will disappear from the market.

Currently, the Tax Code does not take into account the specifics of transactions with securities. Transactions with them are equated to transactions with other types of property. "Individuals pay turnover tax, without balancing income and losses," says Sergei Demeshkin, a specialist at the Metropol company. "Even losses must be taxed."

However, this does not apply to Moscow, where there is a preferential tax regime for individuals and there is no tax on income from securities transactions.

But from the New Year, a new Tax Code will come into effect, and the Moscow benefit will cease to be valid. But that's not the worst of it. In their haste to introduce a flat income tax scale and a single social tax, the deputies failed to notice that the version they adopted was killing private investment.

"The broker will have to withhold 13% tax from each transaction," says Sergei Rybakov, director of the department for working with individuals at ATON. "This is death for all small speculators; private investors will be forced to simply leave the market."

The deputies came to their senses too late - after the adoption of the chapters of the Tax Code on income and single social taxes in the second reading. But the tax reform as a whole was at stake, and the stock market was sacrificed - it was not possible to make changes in the summer.

The Federal Securities Commission has developed amendments to the Tax Code, and the government has submitted them to the Duma, which only yesterday considered them in the first reading. By all accounts, the amendments are very progressive. In particular, they stipulate that the tax base is formed based on the results of the year, income is divided according to the content of the transaction (purchase, sale, trust management), and losses reduce the taxable base. In addition, the tax should be calculated and paid by the investor, not the broker. "Many brokers refuse to work with individuals because of the need to calculate and withhold taxes themselves," says Rybakov from ATON.

"The amendments comply with all Western standards and correct the schizophrenic things in the Tax Code," said Ivan Grachev, a member of the Property Committee. "This concerns 10% of our fellow citizens who have shares in, for example, Gazprom and RAO UES."

But the deputies are late again. For the amendments to come into force next year, the Duma must pass them in two more readings, the Federation Council must approve them, and the president must sign them before the end of the year. The last meeting of the Federation Council will take place in the 20th of December. Sources in the Duma admit that there is almost no chance of making it in time.

"The deputies of the banking committee understand that if the Duma does not manage to adopt the amendments before the New Year, it will be a disaster for the market," Vladimir Tarachev, deputy chairman of the budget and taxes committee, told Vedomosti. "But the government and some deputies do not understand this; they are focused on other amendments to the Tax Code."

According to Tarachev, if the amendments are approved next year, they will come into effect only from the middle of the tax period - July 2001. However, in private conversations, brokers doubt that all of them will live to see this date. Preferential taxation attracted many companies to formalize transactions through individuals, and now such companies will be left out of work.

Rare broker survives until July