A decree by President Boris Yeltsin, which came into effect Saturday, lifted customs duties on machinery, equipment and components imported "for the production development of enterprises" under contracts signed before Jan. 1, 1993. It also removed customs duties on similar equipment imported using credits provided to the Russian government by foreign states and international organizations.
The decree appeared to be a concession to would-be investors and analysts who have said that high taxes on goods imported for investment purposes are keeping capital out of Russia.
But analysts said the tax breaks applied to very few would-be investors and did little to change what they see as the main deterrent to major investment in Russia: a tax climate characterized by frequently changing, sporadically enforced and often excessive levies.
"It does nothing for today's investor, if you have a new joint venture partner and you want to bring in equipment and modernize them," said Philip Tremonti, tax partner at Price Waterhouse.
Charles Blitzer, the World Bank's chief economist in Moscow, commented, "A strong case can be made for having lower customs duties across the board," he said. "But I don't think that giving tax exemptions for one or another good being used for one or another purpose is going to help the overall tax picture."
Ruth Cook, a tax consultant at Price Waterhouse, pointed out that the exemption for projects financed by international organizations applied only to cases where funds went to the Russian government, not to separate Russian companies. It is further limited to firms which have "registered" their contracts. It is unclear from the text whether a registration process will be set up or whether the decree will only benefit firms that have already registered specially with the government, Cook said.
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