Due to exorbitant land prices, business owners would prefer a fixed-rent scheme, though they understand that this choice may run contrary to the wishes of the state.
From Jan. 1, companies will no longer have the right to use land without time limitation, which was granted to entrepreneurs in the course of privatization. In accordance with the Land Code, companies must either buy the land on which they operate or finalize a rental agreement with the landowner -- be it the federal, regional or municipal authorities -- before the January deadline.
The Property Ministry is having trouble convincing businesses that the purchase of real estate is necessary.
United Heavy Machineries CEO Kaha Bendukidze has calculated that to buy all his firm's real estate plots would require $180 million -- $20 million less than his company's market capitalization and nearly double its profit last year. And the way federal taxes are calculated, the value of that land will soar from $3.5 million to $62 million. More than 90 percent of the land controlled by enterprises will be leased, no matter whether the government owns shares in the enterprise, Bendukidze said.
Throughout the regions there are 80 distinct rates, which can differ by a factor of 75.
The RSPP estimates that land purchases in accordance with set parameters would take a $100 billion chunk out of company turnovers. This is equivalent to industrial workers' salaries for two years and 25 percent of GDP, or 120 percent of industrial production. The purchase of real estate will raise the tax payload from 30.1 percent to 55.1 percent.
Norilsk Nickel assistant CEO Alexander Perov said the main problem facing companies is the lack of clarity concerning the real estate prices of plots of land and their rental rates. "For this reason, I hope our decision to rent [from Jan. 1] does not close the door to buying the land," Perov said.
Bendukidze and other business people met with Prime Minister Mikhail Kasyanov in April to discuss the issue, and Kasyanov suggested they put their recommendations in writing. With support from the RSPP, Bendukidze took their suggestions to the White House in May. The main suggestion was to change the procedure for calculating the normative cost of land: to limit the total cost to companies to 2 percent of GDP and to permit purchase by installments over the next seven to 10 years.
Bendukidze proposed that land used for production or as part of infrastructure be sold according to new accounting methods, and all other land according to the existing formula. Mikhail Bondarenko, an official at the Economic Development and Trade Ministry, said the law on privatization envisages payments by installment, but "the government should not sell land for 3 kopeks."
A Property Ministry official added that oligarchs turn into communists when talk turns to the purchase of real estate at market prices.
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