The parties in question have agreed upon a possible IPO. Only upon completion of IPO can one argue how successfully the shareholders have solved the problem of international recognition of the would-be company (while Glencore has assets in various countries, the company is nonpublic and its contribution in the shareholder capacity by itself is not a Уsign of qualityФ.
October 2006 also highlighted a preliminary destiny for, perhaps, not most respectable, but quire legal segment of the Russian market, that is, the gambling. Having fallen a prey to the noted antiGeorgian campaign, it УdeservedФ Mr. PutinТs separate comment. He vowed to send it to exile into four Уsettlement-freeФ zones, of which two would be located in the European part of the country, while the other two- in Siberia and Far East, accordingly. However, the respective bill has read explicitly that effective as of next summer, the respective limitations should imply more sever restrictions to organizers of this particular business in terms of companiesТ authorized capital, number of tables etc., while the exile to the zones is tentatively scheduled for 2009.
S. Zhavoronkov Budgetary and Tax Policy According to the tentative performance of the budget as of September 2006, the level of revenue of the RF federal budget made 23.83per cent of GDP; the expenditures accounted to 15.12 per cent of GDP, budget surplus has come up to 8.71% of GDP. Within January - August of 2006 the RF consolidated budget revenues made 36.6 per cent of GDP, consolidated budget expenditures made 25.2 per cent of GDP, and consolidated budget surplus accounted to 11.4 per cent of GDP. As of October 1, 2006 the volume of financial reserves of the RF Stabilization Fund made RUR 1.894.09 billion, as compared with RUR 1 730.6 on October 1 of the current year.
The State of the Federal Budget According to the tentative estimates of the federal budget execution on cash basis, made by the RF Ministry of Finance, the federal budget was executed in terms of revenue in the amount of RUR 4,550.7 billion (23.83 per cent of GDP), in terms of expenditures - in the amount of RUR 2,887.billion (15.12 per cent of GDP). The budget surplus made RUR 1,663.4 billion (8.71 per cent of GDP). It should be noted that the amount of revenues of the federal budget within January-September of 2006 in absolute terms was significantly higher than the respective indicator of the relevant period of 2005 (RUR 3,676.5 billion); nevertheless, some decline was registered in the relevant period with regard to GDP (24.41 per cent of GDP in 2005). The amount of federal budget expenditures throughout January-September 2006 has also grown in nominal terms in comparison with the relevant period of the year 2005 (RUR 2 509.5 billion); however, in relation to the share in GDP it demonstrated a certain decline (RUR 16.66 per cent of GDP in 2005). As to the federal budget revenues in August and September of 2006, it made RUR 565.96 and RUR 528.3 billion accordingly, which make 24.42 per cent and 23.83 per cent of monthly GDP. Federal budget expenditures in August and September of 2006 made RUR 346.5 billion (15.51 per cent of GDP) and RUR 332.2 billion (15,12 per cent of GDP) accordingly. The relevant federal budget surplus made RUR 219.4 and RUR 196.1 billion, which is 8.91 per cent and 8.71 in terms of the shares in GDP. Therefore, as of September results, one can observe a certain decline in the federal budget revenues and expenditures against preceding month of the current year in both, absolute terms and in relation to GDP.
For the structure of revenues over the period under observation, see Table 1.
T Table 1.T Amounts of Revenues to the RF Federal Budget (GDP % in terms of cash basis execution) Execution on cash basis September August 2006 September 2005 Taxes and other payments adminis13.20% 12.08% 11.74% tered by the Federal Tax Service Taxes and other payments administered by the Federal Customs Ser- 9.41% 10.97% 10.81% vice Receipts administered by the Federal Agency for Management of Federal 0.22% 0.22% 0.22% Property Revenues of the federal budget ad1.58% 1.15% 1.07% ministered by other federal structures Total revenues 24.41% 24.42% 23.83% As one can see in Table 1, in September of 2006 the structure of tax revenues as broken by individual sections did not practically change in comparison with the data registered in August and September of 2005. Nevertheless, one should notice a decrease of certain tax proceeds in terms of shares in GDP. Thus, the bulk of the tax revenues was associated with the taxes and other payments administered by the RF Federal Tax Service, their share in GDP made 11.74 per cent, as compared with 13.per cent of GDP registered in September of 2005 and 12.20 per cent of GDP in August of the current year. The revenues administered by the RF Federal Customs Service were somewhat higher than the respective indicators observed in September 2005 (9.41 per cent of GDP), but lower as per relevant indicator of previous month (10.97 per cent of GDP). The scope of revenues, administered by the Federal Agency on Federal Property Management has not been changed in September against relevant indicators of the preceding year and August of current year (0.22 per cent of GDP). As concerns the rest of the revenues of the RF federal budget administered by other federal structures, in September of current year, they have been considerably decreased in comparison with the indicators of previous year (1.58 per cent of GDP) and August of the current year (1.15 per cent of GDP).
Preliminary data of the RF Ministry of Finance on financing of expenditures borne by the RF federal budget in January - September of 2005 and 2006 are presented in Table 2.
It should be noted that in January through September of this year the share of financed expenditures of the federal budget in GDP made 16.71 per cent, what was significantly lower than the respective indicator registered in January through September of 2005 (19.35 per cent) and in January through August of the current year (18.63 per cent). Comparison of the structure of expenditures shows that in 2006, similarly to the figures registered a year ago, the largest amount of financing was allocated in the sphere of interbudgetary transfers (5.74 per cent of GDP as compared with 7.56 per cent of GDP in 2005). As concerns other most significant flows of expenditures, there were also respective differences. Thus, in January through September of 2006 the expenditures for federal issues made 2.31 per cent of GDP (2.88 per cent of GDP in 2005), including 0.8 per cent of GDP for the servicing of public and municipal debt (1.34 per cent of GDP in 2005); for national defense (2.63 per cent of GDP as compared with 2.88 per cent of GDP registered in 2005); housing and public utilities (0.20 per cent of GDP as compared to 0.03 per cent of GDP in 2005), national security and law-enforcement (2.14 percent of GDP against 2.3 per cent of GDP a year ago).. As concerns other largest expenditure items, the differences were less significant. Thus, for the national economy expenditures made 1.23 per cent as compared to 1.17 per cent in 2005. Other expenses throughout January-September 2006 totaled to 2.66 per cent of GDP as compared to 2.49 per cent of GDP in January through September 2005.
T Table 2.T Amounts of Financing of the RF Federal Budget Expenditures (% of GDP) Financing of Expenditures January- January-August JanuarySeptember 2005 2006 September Federal issues 2,88% 2,57% 2,31% Including expenditures associated with the servicing 1,34% 0,90% 0,80% of the public and municipal debt National defense 2,88% 2,91% 2,63% National security and law enforcement 2,37% 2,32% 2,14% National Economy 1,17% 1,27% 1,23% Housing and public utilities 0,03% 0,23% 0,20% Environmental protection 0,02% 0,03% 0,03% Education 0,80% 0,84% 0,78% Culture, cinematography and mass media 0,24% 0,23% 0,21% Health care and sports 0,49% 0,65% 0,58% Social policy 0,91% 0,98% 0,86% Interbudgetary transfers 7,56% 6,61% 5,74% Total expenditures 19,35% 18,63% 16,71% T Table 3.T Execution of the RF Consolidated Budget in January through May of 2006 (in per cent of GDP) I II III IV V VI VII VIII IX X XI XII Taxes* 25,6% 24,4% 25,6% 27,4% 27,1% 26,0% 26,1% 25,7% 25,0% 25,0% 25,1% 25,2% Revenues 32,0% 30,3% 31,5% 33,4% 33,6% 32,2% 32,2% 31,6% 30,9% 30,8% 30,7% 31,1% Expenditures 20,7% 25,3% 27,7% 28,8% 28,8% 28,6% 28,7% 28,5% 28,2% 27,8% 27,9% 29,7% Deficit/ 11,3% 5,0% 3,8% 4,5% 4,7% 3,5% 3,6% 3,1% 2,7% 3,0% 2,8% 1,4% Surplus I II III IV V VI VII VIII IX X XI XII Taxes* 6,1% 21,8% 27,4% 27,4% 26,6% 27,2% 27,1% 26,4% 26.5% 26.9% 26,8% Revenues 30,6% 28,2% 29,8% 32,9% 32,9% 32,5% 33,1% 32,9% 31,9% 32.0% 32.3% 32,3% Expenditures 18,5% 22,8% 25,4% 27,3% 26,9% 27,0% 27,0% 26,9% 26,0% 25.9% 26.1% 27,8% Deficit/ 12,1% 5,4% 4,4% 5,6% 6,0% 5,5% 6,1% 6,0% 5,9% 6.1% 6.2% 4,5% Surplus I II III IV V VI VII VIII IX X XI XII Revenues 48,8% 40,3% 40,3% 40,8% 38,8% 38,2% 37,6% 37,0% 36,0% 35,9% 35,8% 36,1% Expenditures 22,2% 23,3% 24,9% 27,1% 26,5% 26,6% 26,7% 26,6% 27,2% 26,1% 25,9% 28,1% Deficit/ 10,0% 26,5% 17,0% 15,4% 13,7% 12,3% 11,6% 11,0% 10,5% 8,8% 9,8% 7,9% Surplus I II III IV V VI VII VIII IX X XI XII Revenues 36,2% 34,4% 37,9% 37,1% 37,2% 36,9% 36,5% 36,6% Expenditures 17,6% 21,0% 24,2% 25,4% 24,7% 26,6% 25,4% 25,2% Deficit/ 18,7% 13,4% 13,6% 11,7% 12,5% 10,3% 11,2% 11,4% Surplus *без учета ЕСН As concerns the comparison of other expenditures made in January through August and in JanuarySeptember 2006, one can see from the Table, that expenditures made in August were considerably decreased.
At the end of the first eight months of 2006, the revenues of the RF consolidated budget made 36.per cent of GDP as compared with 37.0 per cent of GDP, registered in the respective period of 2005.
The expenditures of the consolidated budget have also been reduced as compared with the respective indicator of 2005 and made 25.2 per cent of GDP (against 26.6 per cent of GDP). The surplus of consolidated budget in January-August 2006 made 11.4 per cent of GDP, what is somewhat higher of the 2005 indicator (11.5 per cent of GDP). Therefore, in January through August of 2006, there was observed some decrease in the revenues of the RF consolidated budget, whereas an expressed drop was noticed in the expenditures of consolidated budget in terms of their share in GDP in comparison with the respective figures of 2005, what caused some growth of the surplus of the consolidated budget.
Moreover, in October the RF Ministry of Finance has published the data of the RF enlarged government on the budget execution in January through August of 2006. In accordance with the presented indicators, the amount of revenues made 40.8 per cent of GDP, the expenditures made 28.8 per cent, whereas the surplus made 12.0 per cent of GDP.
As of October 1, 2006 the financial reserves of the RF Stabilization Fund made RUR 1 894.09 billion (13.3 per cent of GDP) as opposed to RUR 1 730.6 billion on September 1 of the current year.
Major developments in the budgetary sphere.
In October it was informed that the RF Government is going to introduce in autumn 2006 a draft Law on transfer pricing. Sergey Shatalov, the Deputy Minister of Finance, has informed that the draft legislation will be better fit for regulation of the relevant issues. Moreover, it was noted that the Ministry of Finance is working on draft legislation concerning dividends of holding companies. According to the draft legislative provisions, the dividends derived by the Russian companies as a result of strategic participation in other companiesТ activities, shall be tax-exempt in regard to profit tax. In the initial version the strategic participation was defined as 20-per cent shares holding for at least one year (or ownership of shares with the minimal value of RUR 1 billion). However, later the Deputies have enlarged the package of shares up to 50 per cent. The law, planned to come into force in 2008, is expected to enhance the conditions for the activities of companies' subsidiaries on the territory and those executed through the territory of Russia, and first of all, to the CIS companies.
The Prime Minister has also noted, that the reduction of the unified social tax (UST) to 13-14 per cent will multiply the wages rate. According to his information, an average level of each employee monthly salary should reach USD 2-2,5 thousand to reach the current level of proceeds. Otherwise it will be not feasible to detect the alternative sources of funding. Moreover, the Prime Minister has noted that while the UST (unified social tax) rate decrease to 26 per cent, a growth of legally paid wages was expected. As of the results of 2005, the federal budget and the government Pension Fund shortages of revenues made RUR 295 billion as compared with the estimated results that could have been achieved with unrevised rates. Mr. Shatalov has notified, that in future that indicator will be reducing and reach the level of RUR 140 billion in 2009. According to his information, expansion of the tax base was insignificant. The reduction of UST has not provided a noticeable impact on legalization of business: in general, the volume of shady wages, as well as various schemes of tax evasion are maintained at the same level. As per the estimates of the RF Ministry of Finance, about 30-35 per cent of wages in Russia are paid Уin an envelopeФ.
According to the information of A. Kudrin, the Head of the RF Ministry of Finance, there is a plan to develop a proposal on allocation of assets from the RF Stabilization Fund to the RF Fund of Future Generations. He has mentioned, that after the RF Ministry of Finance has provided the methodology of oil-and-gas budget estimates, the government has instructed to provide a proposal on implementing of the methodology of distribution of the assets between the Stabilization Fund and the Fund of Future Generations. According to the RF Ministry of Finance, implementation of this idea will reduce the dependence of Russia on oil proceeds.
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