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MOSCOW, April 16. /ITAR-TASS/. The Russian government is discussing plans to amnesty capital that may return to the country from offshore zones. The measure might apply not only to foreign cash, but to securities as well.
Two techniques are proposed to encourage repatriation of foreign currency assets. Partial amnesty is one. The taxpayer who agrees to bring the money back into the country will be exempt from penalties and fines for tax evasion, as well as from criminal punishment. Full amnesty is the other. However, it shall not apply to incomes of criminal origin, which are not to be legalized under any circumstance, sources in the Russian government say.
The proposed measure is seen as a complement to the Finance Ministry’s plan for what has been termed “de-offshorization” of the Russian economy, drafted after President Vladimir Putin issued relevant instructions late last year. In his address to the Federal Assembly in December 2013 Putin said that over just one year a total of $111 billion worth of goods (one-fifth of the country’s export) had been through off-shore zones.
The Federation Council (upper house of parliament) estimates that the exodus of funds from Russia to offshore zones over the past twenty years has totaled at least $800 billion. Pro-active measures against capital flight to offshore tax havens were launched in the wake of the Cyprus crisis of 2013, when foreign lenders demanded the authorities should tax bank deposits. Then it turned out that most of the residents of Cyprus-based financial organizations are of Russian descent.
“In the current political and economic situation, when some Russians may face sanctions in offshore zones, they may wish to move their capital to Russia to preserve their assets. True, in Russia they will have to pay a fine for underpaid taxes, but they will be able to legalize their money in exchange,” Yevgeny Gontmakher, a deputy director of the Institute of World Economy and International Relations (IMEMO) has told ITAR-TASS in an interview.
Asked if the measure would help replenish Russia’s budget and encourage economic growth, Gontmakher replied everything depended on how many business people would decide to return home from offshore.
“Also, it is very important where they will decide to invest capital. If they just open deposits in banks or purchase real estate, this will have no effect on the condition of the economy. But if they launch major business projects and create jobs, the contribution to Russia’s economic upturn may be significant.”
“To my mind it will be very important to couple tax amnesty with measures to improve the investment climate inside the country. But in any case, it looks a very useful idea and it should have been translated into reality a long while ago,” the analyst said.
“So far in dealing with offshore capital the authorities have preferred to use the stick, not the carrot. In his message to the Federal Assembly in December 2013 President Putin said that businessmen operating in offshore zones should be stripped of government support and state contracts. Now time is ripe for the carrot policy in relation to offshore businesses - in particular, tax amnesties for assets that may be returned to Russia,” Mikhail Remizov, a member of the Expert Council under the Russian government, has told ITAR-TASS.
However, the analyst believes that a tax amnesty is unlikely to prove an incentive strong enough to bring about a massive repatriation of capital.
“Creation of a favorable investment climate in the country is a long-term task. One government resolution alone will hardly succeed in persuading businessmen to return their funds from offshore,” Remizov said.
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