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Russia Lawmakers OK Tax Reduction

December 18, 1998

MOSCOW (AP) _ The Russian parliament on Friday approved a measure that would reduce two key taxes in an effort to bolster industries hard hit by the economic crisis.

The proposal, put forth by Prime Minister Yevgeny Primakov’s Cabinet, is a risk. The government badly needs money to pay its debts, but also wants to aid struggling businesses.

Parliament’s lower house, the State Duma, tentatively approved a bill that would cut the value-added tax from the current 20 percent to 15 percent in March.

The bill, approved on the first reading, calls for lowering the tax to 10 percent in 2000. The house didn’t immediately set a date for final approval of the bill.

The value-added tax is an important source of income for the government, and foreign lenders, including the International Monetary Fund, have criticized the government for plans to reduce the tax.

Lawmakers also approved a government proposal to slice the tax on profits from 35 percent to 30 percent.

The Cabinet contends the tax cuts, part of a package of 19 tax bills, would help streamline Russia’s unwieldy tax system, provide conditions for economic revival and encourage tax dodgers to pay what they owe.

But critics warn that the tax reductions would only further slash government revenues for 1999, which are already expected to be far too inadequate to cover the country’s expenditures.

Some taxes would increase. The Duma approved a measure that would raise the sales tax on alcohol and gasoline.

The ruble, the national currency, continued its steady slide, trading at 20.75 to the dollar compared with 20.7 Thursday. Before the crisis hit in August, the ruble was at about 6 to the dollar.

The ruble’s fall has boosted prices on imported goods, which account for up to half of Russia’s consumer market. The State Statistics Committee reported Friday that inflation is running at 73.4 percent so far this year. It was less than 5 percent in the seven months before the crisis.

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