Leonid Baryshev on unifed tax conditions: ‘The sooner you adopt an equal law for everyone, the better’
The State Council of the Republic of Tatarstan is ready to introduce a bill to expand the list of real estate facilities that are taxed at cadastral value from 1 January 2025
“Those who paid tax under the general taxation regime have a low rise,” Tatarstan Minister of Finance Radik Gayzatullin defended the new fiscal initiative at a meeting of the Budget Committee of the State Council of the Republic of Tatarstan on 3 July. Tatarstan is expanding the list of real estate that will be taxed at cadastral value: office and retail properties with an area of over a thousand square meters will be added to it, or another 1,683 buildings. The profit is small — additional 500 million rubles to the treasury. Read about what counterarguments were put forward by deputies who came from big businesses and what the head of the Ministry of Finance of the Republic of Tatarstan agreed with them in a report of Realnoe Vremya.
A discussion nobody knows how long will last
From the next year, commercial property will be subjected to a unified taxation mechanism — property tax will be calculated according to cadastre value, not market value. At the same time, they will be applied the highest rate of 2%, and without the soft transition period that could be used during the previous years.
The corresponding amendments to the regional law On Organisational Property Tax were approved today by members of the Committee for Budget, Taxes and Finance of the State Council of the Republic of Tatarstan. The bill itself was recommended for first reading at the next session on 11 July. What forces Tatarstan parliamentarians to turn on the “turbo mode” against the backdrop of a tightening tax regime in the country?
Opening the meeting, head of the budget committee, Leonid Yakunin seemed to guess that the matter would not finish within “ten minutes. “We have a discussion, who knows how long it will last,” he said and gave way to head of the Central Election Commission of the Republic of Tatarstan Andrey Kondratyev with a report on the progress of the presidential election in March. The remaining hour and a half was completely devoted to the debate around the new initiative of the Ministry of Finance of the Republic of Tatarstan. The bill on amendments to the Law of the Republic of Tatarstan On Organisational Property Tax entails an increase in the tax burden for developers and rentiers with large shopping and office centres. It was personally presented by Finance Minister Radik Gayzatullin who goes to parliament on especially important occasions (he usually delegates his deputies).
According to one rule: Tatarstan catching up with the Volga region
The essence of the initiative of the Ministry of Finance of the Republic of Tajikistan is as follows. From next year, taxation of retail and administrative and office buildings with an area of over a thousand square meters will be calculated at a maximum rate of 2% of the cadastral value. Previously, this taxation mechanism was applied to real estate with an area of 2,000 square meters, which has been in effect since 2015-2017. Today, retail properties in Kazan, Naberezhnye Chelny, Nizhnekamsk and Almetyevsk are assessed at cadastral value. Thus, the Ministry of Finance proposed expanding the list of real estate for which the tax base is determined as the cadastral value.
But if ten years ago the authorities provided a transition period by setting reduced rates of 1.2-1.5% with a gradual increase to the base rate of 2% first, this time there are concessions as well. Although a maximum rate is introduced, it is allowed to pay not in full, but in the amount of 60% of the calculated tax amount. In fact, a rate of 1.2% will be applied. Another 1,683 buildings will fall under this regime, and the treasury will receive additional income of 500 million rubles.
With the introduction of this measure, the republic is catching up with other regions of the Volga region. “In 13 regions of the Volga Federal District, these standards have already been adopted and are working. In 10 regions, the maximum rate is 2%, the minister said, “and all real estate, regardless of area, is subject to such taxation.” He specified how taxes are paid in other regions. In five regions — Mari El, Chuvashia, Nizhny Novgorod, Samara, Kirov regions — cadastral valuation works without restrictions. In Ulyanovsk Region, the maximum rate of 2% applies to real estate over 50 square metres. In Bashkiria, Mordovia, Penza and Saratov regions, a maximum rate is being introduced for an area over 1,000 square metres.
The head of the Ministry of Finance also touched upon a sensitive point: how much more will developers have to pay? According to him, those who paid property tax under the general taxation regime will not feel a big burden:
“Many legal entities paid taxes, and some will have less than the cadastral value. Not everyone will have an increase; the increase will affect those who work under the simplified taxation system; they did not pay and will be exempt. Those working under the general taxation regime pay tax on the annual value, and individuals do not pay at all they paid and rented them out. All the information is there, but there will be some dissatisfaction, because they didn’t pay before, but they will pay from 2025. But we cannot talk about a multiple increase for those who paid, there is a sharp increase only for those who did not pay. Those who paid tax under the general taxation regime have a low rise,” Gaizatullin explained.
Have you scraped together another 500 million rubles?
The leader of A Just Russia faction in the State Council of the Republic of Tatarstan Almir Mikheev doubted that it was the right moment. “I believe that in the current situation it would be possible to postpone the introduction of this tax. This will strategically cost more than the immediate benefits. This is only 500 million rubles,” he said making it clear that there is no point in undermining the business activity of a business due to such a trifle. “What will it lead to? Delivery of new administrative business facilities will be reduced, business activity will decrease, and this will indirectly hit the population.” He gave the audience an example of the reasoning of his friend who “will have to raise rental rates by 30% to compensate for expenses.”
As a result, owners will pay their employees less and stop opening new jobs, he predicts. “We could wait a bit, and references to other regions... But we can differ for the better,” he suggested reconsidering the initiative. “But we are already different. The coefficient is not the highest, just 1.2,” Gaizatullin objected to him. “Your friend said that he should close. They will not have any closure, the margin will decrease slightly. But if the employer did not pay [normal wages] before, then he will not pay. We know people like that! We looked at who pays and how. You can invite your friend to us, we’ll discuss it together.”
“We must protect not only business entities but also think about how to pay public sector employees”
The rationale behind the idea of expanding the range of cadastral facilities is that the republic is looking for ways to compensate for the revenues lost from the upcoming tax reform. “Personal income tax is switching to five steps, and the regions will not receive anything. At the same time, increasing the salaries of public sector employees this year will require 7.5 billion, and next year indexation will require 20 billion,” said the minister of finance of the Republic of Tatarstan. The revenue base of large tax payers is decreasing. Tatneft is cutting production by 1.5 million tonnes this year, which means revenue will decrease. This year, income tax is expected to be 40 billion, which is 18 billion less. So far, the forecast is like this, and nothing good is expected. We must protect not only business entities, but also think about how to pay state employees,” he answered frankly.
United Russia deputy Leonid Baryshev was not pleased with this initiative either. But he is dissatisfied not because developers will lose part of their income but because the law will put them in unequal competitive conditions with individual entrepreneurs who rent out premises in residential buildings. They pay taxes on the residual value and offer low rental rates.
“95% of SMEs are located in residential buildings and will not be taxed, because there is a legal snag. Is this residential or commercial space? In Nizhny Novgorod, a commission deals with this, but here... Everyone who can be quickly caught and taxed, first of all. And not those who need to be taxed,” he was indignant.
The unequal conditions, according to his version, lie in the fact that Pyateyorochka chain will be able to rent space at a low rate, but it will not be able to develop the business. “I can’t pass before 900, because there’s something nearby for 700. How will I survive? I have two facilities, but I won’t build any more, because there’s no point,” he lamented. And he proposed to adopt uniform taxation conditions throughout the republic, covering the residential area, as quickly as possible.
“The sooner you adopt an (equal) law for everyone, the better,” he advocated for justice. The minister of finance listened to him with interest and finally said: “I absolutely agree, we need to do it step by step.” So housing will soon fall under the cadastral base.