Ayrat Farrakhov on Investment Code project: “Claims in the first reading are constructive criticism”

Five questions of the deputy to the State Duma’s draft bill on investment protection

Ayrat Farrakhov on Investment Code project: “Claims in the first reading are constructive criticism”
Photo: Maksim Platonov

Protection of investments has been promised to businessmen. The relevant draft bill ‘On protection and promotion of investments and development of investment activity in the Russian Federation’ has been adopted by the State Duma in the first reading. Deputy of the State Duma of the Russian Federation from Tatarstan Ayrat Farrakhov in the column for Realnoe Vremya tells about how the work on the bill is going, what problems it is designed to solve and what shortcomings need to be corrected for the second reading.

The new bill will give large investors a preferential period of tax and regulatory conditions

The new draft bill, which was adopted in the first reading on December 10, had been widely discussed widely even before the first reading, and the discussion was very difficult. It took place at different venues, and all business communities participated in it: Delovaya Rossiya Party, Party of Growth, Chamber of Commerce and Industry, Association of Industrialists and Entrepreneurs. It is also very important that representatives from non-parliamentary parties were invited to discuss the draft bill in the State Duma.

What is the matter, why has the discussion caused such a wide resonance?

We have adopted a surplus budget for the next three years. The macroeconomics of Russia is being state: we have low inflation, low debt, good incomes, and there is an economic growth. But there are also negative factors: Russia is heavily pressured by the dependence of prices on energy resources, oil and gas. The difficult geopolitical situation and trade wars are also affecting, which determines the decline of the world economy. We are absolutely not satisfied with the level of income of citizens: it should be much higher. One of the factors needed to accelerate the economy is investment volume, which, unfortunately, has been declining in recent time.

We are looking for answers to the following questions: how to support citizens? How to change the business environment? How can we support projects that could later become a tax base in the regions of Russia and provide jobs and ensure the well-being of citizens in the coming years? Therefore, the government has recently developed approaches to these issues and prepared the bill ‘On protection and promotion of investment and development of investment activity in the Russian Federation’.

A very large technological plant was built, but due to the completion of the tax maneuver in the oil industry, the conditions at the completion of the project ceased to correspond to the time when the business plan was being calculated. Photo: angi.ru

The essence of the project is as follows: if an investor invests certain money in real projects and the latter meet certain requirements, then the conditions (tax, regulatory, supervisory and others) that were at the time of investing will be preserved for several years without changes, exactly the same as when the business plan was drawn up.

After all, in our country there often happen situations similar to the one that has developed at the Antipinsky oil refinery. A large technological plant was built, but due to the completion of the tax maneuver in the oil industry, the conditions at the completion of the project ceased to correspond to the previous ones when the business plan was being calculated. This, of course, was not a key link in the bankruptcy of the plant, but was one of the factors that influenced the negative scenario of this project.

In general, businesses often note that the federal centre changes the tax and supervisory conditions, and this creates great problems for the development of investment projects. Very often, the federal canter takes decisions that change the rules of the game. This is often done with good intentions, but, as a rule, someone wins, but someone, of course, loses. Therefore, the new bill aims to preserve the conditions that existed at the time of creation of the project for the investors who meet certain conditions and achieve efficiency. Accordingly, if the state violates these conditions, the state is ready to pay compensation.

What conditions are we talking about?

The bill in its current form offers two regimes of the protection and promotion of investments.

If it is a project in the social sphere (related to education or healthcare), “the entrance ticket” for the cost of investments starts from 250 million rubles. The cost of the “entrance ticket” for projects of the agro-industrial complex, industry and digital sphere starts from 1,5 billion rubles. In other sectors — from 5 billion rubles.

From this amount of investment the project regime begins, which involves a three-year moratorium on changes in income tax rates, on property, on land and the immutability of regulatory business conditions.

If this is a larger project — from 10 billion rubles — individual conditions are also offered, along with those that I have already listed. In this case, the company is provided with the individual project regime. It will also include separate decisions on import duties, tariffs on natural monopolies, non-tax payments, reduced environmental fee — that is, expanding the standard range of what the state offers.

In Tatarstan, there are Nizhnekamskneftekhim, KAMAZ, Tatneft — all these projects today form the basis of the economic power of the Republic of Tatarstan, its tax base. Of course, it is very important for us that they develop further. Photo: Sergey Afanasyev

Pros of the draft bill: the state will have a completely new approach to investors

First of all, of course, the state forms a completely new approach to investment and investors. We have the Tax Code (regulating tax legislation), Budget Code (budget legislation), Construction Code (regulating construction). But Russia has not yet had legislation that would regulate the sphere of investments — an Investment Code. And the legislative package being prepared introduces a new platform that will regulate the work with investors and will influence the business environment through it.

That is, in fact, it is a code of state guarantees for those who invest, that is, for those who take on entrepreneurial risk. This is very important and necessary in our changing world. In Tatarstan, there are Nizhnekamskneftekhim, KAMAZ, Tatneft — all these projects today form the basis of the economic power of the Republic of Tatarstan, its tax base. Of course, it is very important for us that they develop further, so that we can further increase our tax base. And this will form the basis of the well-being of the citizens of the republic and the quality of life of the citizens of Russia in general. Therefore, I believe that it is very important to develop and introduce an Investment Code. This will be a great platform for building the investment policy of the whole country.

The bill has already been supported by the State Duma in the first reading, but only on the condition that it must be finalized in detail for the second reading. The procedure of the adoption of bills, which are brought in the State Duma, passes three readings. The first reading is just a statement of concept that says what this bill is aimed at. The State Duma gives an answer to this question: the bill is aimed at stimulating investments, and ultimately it will help to attract about 30 trillion rubles to the country's economy (according to the official representative of the government of the Russian Federation).

But a huge number of comments have been made to the bill, which should be taken into account when preparing it for the second reading. The second reading will be held not earlier than after the New Year, after all regions of the federation, all those who are interested in such regulation, express their position on this issue. And here begins the main work and the most serious discussion.

The draft bill has already been supported by the State Duma, but only on the condition that it must be finalized in detail for the second reading. Photo: duma.gov.ru

Five main questions to the draft bill

As a deputy who is closely involved in the problems of the economy, I have a number of questions to this draft bill. I believe that it is vital to study them before presenting the draft in the second reading.

First, the draft bill in today's edition is still aimed at very large businesses and does not affect either small or medium-sized businesses. Judge for yourself: to provide an entrance ticket to healthcare projects, you need to invest 250 million rubles, and the cost of the entire project must be at least 1 billion. To do this, you need to be a very large investor. These conditions will not be used by small and even medium-sized businesses, which means that they will not receive stabilization of tax conditions. I think that by the second reading it is necessary to significantly reduce the entrance ticket for the social sphere. The same applies to agriculture.

Second, there are already state support projects for private investment in Russia. For example, this concession is a public private partnership. I will give an example from the social sphere: when I worked as a minister, a private maternity hospital was organized in Kazan. This was the first project in Russia that we implemented with a private investor under the Law on public private partnership. It allowed us to attract a very serious amount of private money, without which we would not have been able to implement it. The question arises: how will the new Investment Code take into account projects that are formed within the framework of concessions and PPPs? I do not see an answer to this question yet, and it is also very important to take this into account by the second reading.

Third, there is a general opinion that in today's condition the draft bill can worsen the investment and business environment if it is not changed. At least, this was said by Chairperson of the State Union of Industrialists and Entrepreneurs Alexander Shokhin. By the second reading, it is necessary to prepare specific proposals to answer business questions.

By the second reading, it is necessary to significantly reduce the entrance ticket for the social sphere and for agriculture. Photo: agro.tatarstan.ru

Fourth, we are talking about the conditions that come into force if the project is effective. But what happens if it does not become effective and will not bring profit? Things happen in life. Entrepreneurship is always a risk. What will happen in this case — the draft bill does not reflect. So far, the Investment Сode has been formed for a successful project. It is necessary to work out a mechanism of how to take into account these risks, what agreement should be concluded between a business and the state in this case.

And fifth and most important, I do not see in the draft bill how the role of the constituent entities of the federation — such as Tatarstan, which is very active in attracting investments — will be determined. In my opinion, the main trend should be to expand the powers of the subject, its capabilities and independence. The federal centre should not assume everything: audit and detailed control over investment projects, otherwise it will alienate investors. In my opinion, the maximum independence of the subject in decision-making will provide the Investment Code with a good future.

Therefore, I would put at the forefront the widest possible powers of the subject: in terms of regulation, audit, and decision-making. This is especially true for donor regions, such as Tatarstan.

I think that all this will be taken into account because the concept is important for us for the first reading. When we make claims in the first reading, it does not mean that everything is bad: we put forward honest criticism and suggestions. The most important thing happens between the first and second readings. That's why business says it will support the new bill only if it is worked out in detail.

I think that the State Duma committees responsible for this draft bill — the committee on economy and the committee on budget and taxes — will treat the preparation for the second reading with full responsibility because an effective and flexible Investment Code is an urgent need in the face of challenges in modern Russia.

By Ayrat Farrakhov