Russian Finance Ministry opposes completely reducing federal portion of profit tax through FITD to zero, considers issue of increasing deduction premature
ST. PETERSBURG. March 19 (Interfax) - It is advisable to raise the question of a possible increase in payments under the federal investment tax deduction (FITD), including by increasing its size to 12% of investments from the current 3%, no earlier than in six to nine months, Deputy Finance Minister Alexei Sazanov said.
During this time, in his opinion, it will be possible to analyze the operation of the mechanism, taking into account the changes introduced since the beginning of this year, which soften the application of the FITD for groups of companies and allow the transfer of the right to receive the deduction from one legal entity within a group to another.
"Regarding the increase in the amount of subsidization through the federal investment tax deduction, co-financing, more precisely, of companies' investment expenses, as you know, since January 1 this year adjustments were made to the Tax Code regarding the possibility of transferring investments within a group of companies, when one company of the group earns, and another invests. We propose to monitor the situation and, based on at least 6-9 months of this year, then decide on the need to expand the level of co-financing provided through the FITD. At this stage, we believe that any abrupt changes to the FITD are premature," Sazanov said.
At the same time, he said that the Finance Ministry does not support the idea previously expressed by the Russian Union of Industrialists and Entrepreneurs (RSPP) to provide actively investing companies with the opportunity to reduce the federal portion of the profit tax to zero through the FITD.
"Regarding the complete zeroing out of the federal portion, we certainly cannot support it. Last year, the profit tax rate increased 5%, and we always said that through the federal investment tax deduction, this increased burden could be partially returned to the previous level given a certain level of investment activity. There was no talk about the possibility of zeroing out the federal portion of the profit tax. Accordingly, we definitely will not support this part," he said.
The FITD was introduced on January 1, 2025, simultaneously with the increase in the basic profit tax rate from 20% to 25% and allows reducing the portion of tax paid to the federal budget, which amounts to 8%, to a maximum of 3%. The Tax Code establishes the maximum amount of the deduction: it cannot exceed 50% of the investment amount. The actual size of the FITD is determined by a government decree. According to decree no. 1638, it is currently 3% of investment expenses. If the actual amount of the FITD exceeds the amount that can be refunded, taking into account the need to pay 3% of the profit tax to the federal budget, it can be carried forward to subsequent periods within ten years.
The RSPP proposed increasing the FITD limit from the current 3% of investments to 12%. Businesses also request "expanding the sectoral coverage of FITD application, granting taxpayers the right to reduce the federal portion of the profit tax to zero, and removing administrative restrictions on the use of the FITD mechanism." This was stated in the draft resolution of the RSPP Tax Forum.
