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Duma to discuss insurance premium cuts, budget amendments

October 20, 2011, 4:32 UTC+3

The draft law sets new rates in 2012-2013. The overall rate will be cut for everyone from 34 percent to 30 percent and to 20 percent for small business

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MOSCOW, October 20 (Itar-Tass) —— The State Duma will meet on Thursday, October 20, for an extraordinary plenary session to discuss current budget matters.

The lawmakers plan to debate the first reading of the governmental draft law that reduces insurance premiums to three budget funds: the Social Insurance Fund, the Mandatory Health Insurance Fund and the Pension Fund of Russia.

In 2010, the unified social tax was replaced by insurance premiums that were raised from 26 percent to 34 percent of the payroll fund. The premiums are paid by employers to the abovementioned three funds from salaries that do not exceed 463,000 roubles a year.

The draft law sets new rates in 2012-2013. Ildar Gabdrakhmaniov, first deputy chairman of the Duma Committee on Labour and Social Policy, said, “The overall rate will be cut for everyone from 34 percent to 30 percent and to 20 percent for small business.”

The majority of employers will therefore pay 22 percent to the Pension Fund, 2.9 percent to the Social Insurance Fund and 5.1 percent to the Mandatory Health Insurance Fund.

Small businesses will pay 20 percent to the Pension Fund and nothing to the other two funds.

Gabdrakhmanov said the budget revenue shortfall would be made up for at the expense of the federal budget. Next year budget transfers will amount to 270 billion roubles.

The draft law also determines insurance premium rate for amounts exceeding the maximum sum for calculation of insurance premiums to the Pension Fund (512,000 roubles from January 1, 2012). The new rate will be set at 10 percent.

President Dmitry Medvedev supported the government’s decision to set 10 percent insurance premiums for all companies with salaries exceeding 512,000 roubles.

Russian presidential aide Arkady Dvorkovich said earlier that the 10 percent insurance premiums would apply to the majority of companies except for some, which include, among others, high-tech and engineering companies where salaries are quite high.

“The government will have to offer targeted measures for these companies to avoid additional pressure on them,” Dvorkovich said.

In his opinion, it will be either “a lower rate or other measures”.

“I think it will be a lower rate,” he added.

“The president instructed [us] once again to look at the insurance premiums for small business, which preliminarily should be 20 percent, and consult the prime minister on this issue,” the aide said.

There are different suggestions that range from 9 percent to zero. The president expects a report on the matter in the next 23 days, Dvorkovich said.

New insurance premiums rates will apply from 2012. “This is not an additional tax but premiums,” he said.

Medvedev said earlier insurance premiums can be cut from the current 30 percent to no less than 20 percent for the time being.

“Certain decisions regarding insurance premiums have been made. They may not be as radical as one would like, but they were not easy for the state and the budget. This is the maximum we can afford now, considering the state of the budget and the economy,” the president said.

In 2010, the unified social tax was replaced with insurance premiums that were increased from 26 percent to 34 percent of the employer’s payroll fund. They are paid from salaries under 463,000 roubles.

However, on March 30, 2011, Medvedev instructed the government to reduce insurance premiums from January 1, 2012. “The burden of costs for higher pensions and healthcare is not the best solution, but there are no ideal solutions,” Medvedev said.

He believes that “the premium rate of 34 percent may be exorbitantly high”.

According to the president, a new rate should be “within the range close to the previous ones”.

The government has submitted two options after the president's order given in Magnitogorsk in May. “The first option is to keep the rate of 34 percent only for big business and reduce current rates for small manufacturing and social businesses (to 16-20 percent), and to a level close to 26 percent for medium-sized business,” Russian presidential aide Arkady Dvorkovich said earlier this month.

“The second option is to reduce the maximum rate to 30 percent, and that for small manufacturing and social businesses from 26 percent [to 16-20 percent],” he said, adding that the first option would have priority.

He said that the decision to be made would be effective for two years.

Speaking of how to make up for a shortfall in revenues from these cuts, Dvorkovich said there are several possibilities. “All options have been presented, they have their good and bad sides, but it is obvious that the rate will be cut for the overwhelming majority of businesses. As for compensation [for the shortfall], we may use some of the money from the National Welfare Fund or change the regressive [tax] scale or increase some other taxes”, the aide said, adding that the latter solution was “not the best one”.

He noted that the second option would be effected if the first one is not perfect and cannot be administered properly.

Ideally, the social tax rate should go back to the previous level, Dvorkovich said earlier. “We have set such a task, but there is no set of measures” to fulfil it, he admitted.

In his opinion, a higher social tax rate may be unacceptable for many enterprises and may force them to opt for shadow operations.

Dvorkovich cited projections indicating that the budget may lose 700-800 billion roubles because of that.

However he believes that the lowering of the social tax may help to reduce these losses.

Prime Minister Vladimir Putin said the government would seek ways to reduce taxes on business while continuing to meet social standards.

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