| The government of Tatarstan intends to reduce the local tax on bank profits The government of Tatarstan announced its intention to reduce the tax burden on the republic's banks by reducing their profit tax rate (in terms of contributions to the local budget) from 14.5 to 10.5%. According to analysts, the leadership of Tatarstan is seeking to support local business, primarily its subsidiary bank Ak Bars, in the face of declining profitability of the lending business. Other regions, apparently, will not follow Tataria’s example.
From January 1, 2002, the tax burden was reduced for the entire banking sector - the income tax rate for credit institutions was reduced from 43 to 24%, which partially compensated bankers for losses from a decrease in interest margins. “After the introduction of the new rate,” notes Mikhail Matovnikov, head of the banking department of the Interfax rating agency, “the differentiation of the tax burden by region became less noticeable.”
In history, St. Petersburg remains the most striking example of regional tax incentives for banks. In 1994, Anatoly Sobchak, who dreamed of turning St. Petersburg into the financial capital of Russia, significantly reduced the tax on bank profits, equalizing the taxation of the banking system and other sectors of the economy. As a result, this city came into second place after Moscow in terms of the total volume of banking assets and the number of operating credit institutions.
Last Friday, a similar step was announced in Tatarstan. Prime Minister of the Republic Rustam Minnikhanov, at a meeting with the heads of the largest Tatar banks, promised to reduce the profit tax rate in terms of contributions to the local budget. According to him, quoted by Interfax, the idea will be discussed when forming Tatarstan's budget for 2004. Mr. Minnikhanov supported the idea of the Association of Banks of Tatarstan to reduce the rate from 14.5 to 10.5%, adding that the cabinet expects an increase in tax revenues from industry by increasing output from 7 billion to 10 billion dollars per year.
The head of the market analysis department of Rosbank, Valery Petrov, calls the initiative of the Tatar authorities “a strong measure that will have a serious impact on the profitability of banking business in the region.” However, analysts are not counting on the St. Petersburg effect. “The government of Tatarstan most likely means supporting local businesses, primarily the largest bank in the region, Ak Bars,” says Mikhail Matovnikov. “To attract credit institutions to the region, factors such as the policy of the local government and the territorial administration of the Central Bank regarding opening branches and subsidiaries of banks are more important.” Georgy STOLTS |
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