The Russian Federation Council has passed amendments to the Tax Code increasing taxes on commercial real estate across the country, despite protests from business owners that the new system will likely damage small businesses.
The amendments passed the State Duma on October 25 and the Federation Council on October 30 and will require that taxes be calculated on the commercial properties’ cadastral values. These are the state estimates of market values as opposed to the lower inventory book values currently being used.
Buildings will be subject to the new tax if a minimum of 20 per cent of their total area is taken up by retail facilities, office space, or food service. Indoor parking and other supporting infrastructure would be included when calculating the percentage.
Industrial facilities will be exempt from the tax following successful lobbying by the Russian Union of Industrialists and Entrepreneurs.
Tax rates will increase to 2 per cent of the commercial properties’ cadastral values by the year 2016. Taxes in Moscow will reach 1.5 per cent next year and 1.7 per cent in 2015. Rates in the regions will increase at a gentler pace, increasing to no higher than a single per cent in 2014 and 1.5 per cent in 2015.
Moscow officials insisted that the law be applied to office space. The city could receive as much as 35 billion rubles ($1.1 billion) from the new tax next year, according to Maxim Reshetnikov, head of the Moscow economic policy and development department.
Alexander Brechalov, the president of Opora Rossii, a business lobbying group, wrote to Federation Council Speaker Valentina Matviyenko to express concerns that the amendments would increase property owners’ expenditures on property tax by seven or eight-fold. He said that the increased costs would seriously affect small and mid-sized businesses, according to Itar-Tass.
Mr. Brechalov added that the current evaluation system is “opaque and not a suitable basis for calculating taxes.” He pointed to instances where the cadastral value of a property can exceed its market value “by up to 10 times.”
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