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Russia risks repeating India's misstep with tax on dividend distribution -business lobby

·2-min read
FILE PHOTO: A sheet of 1000 Russian Rouble notes at Goznak printing factory in Moscow

MOSCOW (Reuters) - A Russian business group has urged the government to reconsider its plan to set a formula-based profit tax linked to previous dividends and investments at home, saying it could damage investment climate as was the case in India.

Russia's finance ministry has proposed raising the profit tax starting in 2022 for companies that spent more on dividends than on capital expenditures in the past five years, sources familiar with talks told Reuters last week.

Prime Minister Mikhail Mishustin will meet business representatives to discuss the proposal on Thursday, three sources told Reuters on Wednesday.

President Vladimir Putin in March urged Russian metals exporters and other big companies to invest more for the good of the country.

Putin probably meant distribution of profit earned in 2021, not in the previous years, Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, said in a letter to Mishustin.

The letter, a copy of which was seen by Reuters, criticised the finance ministry's proposal in its current form and asked for significant revision of the concept.

"The proposal is not investment-enhancing but is punitive in nature," Shokhin said in the letter, adding that foreign investors could see it as indirect extra tax on dividends they receive from Russian companies.

"India's introduction of a tax on distribution of profits to shareholders ... had a negative impact on the investment climate in the country," Shokhin added.

He declined to comment when contacted by Reuters.

India had a tax on companies' distribution of dividends to shareholders, which affected investment sentiment in the country before it was abolished last fiscal year.

The typical method of India, Russia and many other countries is to tax shareholders for dividends they receive.

The aim of the Russian tax proposal, if it is approved, will be to stimulate investment, not to obtain additional budget proceeds, Finance Minister Anton Siluanov said on Tuesday, adding that it would affect a very small number of companies.

(Reporting by Anastasia Lyrchikova, Darya Korsunskaya, Gleb Stolyarov and Polina Devitt in Moscow; Additional reporting by Aftab Ahmed in Delhi; Writing by Polina Devitt; Editing by Matthew Lewis)

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