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Outpacing development territories to help draw investors into Russia’s Far East

March 02, 2015, 19:44 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Andrey Babushkin

MOSCOW, March 2. /TASS/. From this moment on any investor who may have made up his mind to start a business in Russia’s Far East can count on considerable tax breaks and preferences, granted under a special law on the territories of outpacing socio-economic development, effective since March 1. Experts forecast the project is bound to be successful.

The basic idea behind the project is the lowest taxation possible, a business-friendly environment and the government’s maximum role in creating infrastructures. For instance, investors who may have opened their business under the terms of the outpacing development territory project will be exempt from paying the two-percent profit tax to the federal budget for a five-year period following the moment they declare a profit. And the profit tax payable to the regional budget for the first five years in business for them should not exceed 5% (in contrast to the usual rate of 18%). A special coefficient has been set for the mineral resources production tax. The resident businesses of outpacing development territories will be exempt from the tax on the property of economic entities, too. The overall tax burden will be at about 12.2%.

In February, three first sights for outpacing economic development territories were selected — two in the Khabarovsk Territory and one in the Primorye (Maritime) Territory. Russia’s federal minister for the development for the Far East (Aleksandr Galushka) said that creating the infrastructures of these three territories would require 6.2 billion rubles (about $100 million) of budget money, while another 50.48 billion rubles (about $800 million) will come in private investment. The Khabarovsk outpacing development territory already has its first investor — Baoli Bitumina Singapore — which will build a high-tech plant manufacturing bitumen-based compounds and alloys. The project is estimated at $50 million.

In the longer term more outpacing development territories will emerge in all of Russia’s territories in the Far East, their areas ranging several hundred thousand to several thousand hectares.

The outpacing development territories will have some distinctions as compared with special economic zones. In Russia there are 29 of these. Secondly, the outpacing development territories, in contrast to special economic zones, will be not just selected industrial sites. Their development will proceed within the framework of far wider concepts.

The creation of outpacing development territories is a timely measure, although an insufficient one, says the director of the Regional Reforms Development Center at the presidential academy RANEPA, Aleksandr Deryugin. "The regional budgets situation in the Far East is far worse than it is in the other regions of Russia. Something has to be done about that fast," Deryugin told TASS, adding he was hopeful the project would be able to draw investment and contribute to turning the situation for the better."

There is another feature that makes the outpacing development territories different from the special economic zones. The law envisages their extra financing from the federal budget and considerable support from the local authorities. Also, their diversification is far wider, the chief of the regional economy and economic geography chair at the Higher School of Economics, Alexey Skopin, has told TASS. "The special economic zones, which in contrast to the Far Eastern outpacing development territories, are located mostly in Russia’s European part, west of the Ural mountains, investors often found themselves in a situation where federal laws contradicted the local ones. As a result, none of the special economic zones has achieved capacity operation."

The outpacing development territories are based on a different kind of approach — alongside tax benefits it is exceptionally important the federal government will be working on this program hand in hand with investors.

"It is a more flexible project, and for that reason more attractive to investors, first and foremost, the Asian ones," Skopin said. "In contrast to Europe the Asia-Pacific countries are brimful of cash. China, Japan, Singapore and South Korea have huge financial resources they have no idea where to invest. And they will eagerly be coming with their money against the guarantees of Russia’s federal government."

"This is going to be a rather successful project," Skopin said.


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