Federal Law includes favorable amendments to the Tax Code of the Russian Federation for farmers, including extension of zero income (profit) tax on agricultural producers for an unlimited period.
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USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
GAIN Report Number: RS1262
Russian Legislation on Tax Benefits for Farmers
On the eve of WTO accession the Russian President and the Russian Government declared their
intention to increase support for Russian farmers and agribusinesses. In July 2012, the State Duma
received several draft laws on support for farmers. In September 2012, the first portion of these drafts
was approved by the State Duma, and on October 2nd, Vladimir Putin, the Russian President, signed the
Federal Law on support for agricultural producers (FL No.161 of October 2, 2012). This Federal Law
includes favorable amendments to the Tax Code of the Russian Federation for farmers, including
extension of zero income (profit) tax on agricultural producers for an unlimited period.
In the middle of June 2012 the General Council of "United Russia" with the participation of Dmitry
Medvedev, the Russian Prime Minister, and the Party Leader approved a package of support measures
for Russian farmers following accession to the WTO. This package of measures was submitted to the
State Duma in July, and Andrey Vorobyev, the leader of United Russia in the Duma, assured that all the
initiatives would be considered as a priority.
On September 19, 2012, the State Duma adopted several favorable amendments to the Tax Code of the
Russian Federation for farmers. On October 2rd, 2012 these amendments were signed by the President of
the Russian Federation into a Federal Law: On Amendments to Part Two of the Tax Code of the
Russian Federation and on Repealing Certain Provisions of Russian Legislation (FZ-161
http://news.kremlin.ru/media/events/files/41d41afb1d6969e41989.pdf . These amendments to farmer
taxation comprise the most significant portion of the United Party’s initiatives aimed at supporting
farmers in light of Russia’s WTO accession. The amendments to the Tax Code of the Russian federation
include the following:
To add the following agricultural products to the list of products subject to the preferential, 10
percent VAT: pedigree cattle, pedigree pigs, pedigree sheep and goats, pedigree horses; pedigree
hatching eggs; semen of pedigree bulls, pigs, sheep, goats, and stallion; embryos of pedigree
cattle, pigs, sheep, goats, and horses (amendment to point 2 of Article 164 of the Tax Code).
This privilege will be in force through December 31, 2017. The current VAT on these products
is 18 percent. The original draft of amendments had proposed VAT-free imports of pedigree
cattle, hatching egg, and animal semen and embryos.
To exempt the head of farmer-peasant’s enterprises and private farmers from paying individual
income taxes (income taxes on physical persons) on grants received from the federal/regional
budgets, such as grants for the creation and development of peasant farms, lump-sum grants for
beginning farmers, grants for the development of family livestock farms, and on subsidies
received from the federal/regional budgets (amendments to Article 217 of the Tax Code). This
privilege will cover grants and subsidies received after January 1, 2012. According to industry
analysts, in 2012 grants to farmers amounted to 7 billion rubles ($233 million). Russia’s
individual income tax (income tax on physical persons) is 13 percent.
To extent zero income (profit) tax for agricultural producers for an unlimited period. At present
farmers that have not switched to the regimes of unified agricultural tax , do not pay income
tax (tax on profits). This privilege was supposed to end in 2013 be replaced by a 18 percent
income tax in the period 2013-2015, and by a 20 percent income tax (general for all business)
beginning 2016. During the first hearing of the draft amendments (July 2012) the Duma agreed
to extend a zero tax on farmers’ profits through 2015, and the preferential, 18 percent, tax on
profit from 2016 to 2020. However, by the third hearing the State Duma decided to extend the
zero income tax for an unlimited period, and adopted this version of amendments on September
19, 2012. According to industry experts, the farmers may save from 1.7 billion rubles ($57
million) to 2.5 billion rubles ($83 million) annually as a result.
To allow consumer cooperatives (that unite more than 100 persons) to use the system of unified
tax on imputed income for certain types of activities through December 31, 2017. At present this
privilege works until January 1, 2013.
The Federal Law No. 161 of October 2, 2012 comes to force on January 1, 2013, but not earlier than
one month after the official publication of the law, and not earlier than the beginning of the tax period
for certain taxes.
Other “United Party” initiatives that have not yet passed Duma hearings and have not been made law
included the following:
Amendments to the Federal Law "On the Development of Agriculture" which envisage up to 35
percent compensation of the amount spent by farmers on the purchase of machinery and
equipment needed to modernize production. The authors interpret “modernization” widely -
from energy-savings to improvement of productivity and soil conservation and protection of
environment. The possible budget cost of these measures in 2013 could be 14 billion rubles
($450 million), and will increase in 2014 -2015 to 42 billion rubles ($1.3 billion) total. The
procedure of payment of compensation and the list of machines that qualify for compensation
will be determined by the government. Nadezhda Shkolkina, the Deputy Chairman of the State
Duma on Agrarian Issues, noted that this is an attempt to change the agricultural support policy
from interest rate subsidies to direct support of farmer income.
Proposals also introduce to Russian legislation the term - region unfavorable for agricultural
production - as WTO regulations allow federal support of these regions. The Ministry of
Agriculture may propose to consider “unfavorable” those regions where the average profitability
in agriculture is below the average (although there is no clarity on how this would be
determined). According to “Vedomosti”, almost half of Russian agricultural regions may fit
Provincial authorities may be allowed to suspend the enforcement of some federal laws. Thus, in
accordance with the current legislation the local agricultural markets (so called kolkhoz markets)
shall be reconstructed into permanent buildings by 2015, and this may result in closure of 43,000
of local agricultural/farmer markets.
Amendments also may allow provincial and local authorities to rent unclaimed land (land shares)
to farmers without open tenders. At present there are 22 million hectares of unclaimed
agricultural land in the total 402.3 million hectares of agricultural land in Russia.
These proposed pieces of draft legislation have not passed the Duma yet, although the Duma members
and the Russian government seem to be in favor of these legislations. Thus, at the last meeting of the
Government on October 4th, 2012, Dmitriy Medvedev, the Russian Prime Minister, reported that the
proposals on support of “regions unfavorable for agricultural production” are almost ready for formal
 Agricultural producers may choose two schemes of tax payments: 1) to pay a unified agricultural tax that is 6 percent of
the net income (gross receipts minus expenses) instead of three taxes (income tax, VAT, and tax on real estate) 2) to pay all
three taxes, but the net income tax is 0 percent. Both schemes apply only to “agricultural producers”. Farmers and enterprises
qualify as agricultural producers if agricultural/fishery products comprising not less than 70 percent of output.