Tatarstan to sacrifice profits for the sake of German project and Kogogin

A new plant of KAMAZ and Daimler worth $3 billion needs tax incentives

Tatarstan to sacrifice profits for the sake of German project and Kogogin Photo: Sergey Afanasyev

Tatarstan will offer the investors profit tax incentives: regional tax rate for the next 8 years for freight industry will be reduced to zero. Formally, the companies that will invest in the production not less than 750 million rubles will have the opportunity to use the incentive. However, these incentives are necessary, first of all, for the joint venture of KAMAZ and Daimler. Read the details in the material of Realnoe Vremya.

8 years without tax

As it became known to Realnoe Vremya, the government of the Republic of Tatarstan will fully exempt certain truck producers from income tax until 2025 including. According to several interlocutors of Realnoe Vremya, such proposal has been elaborated by the ministry of industry and trade of Tatarstan. The benefits will be provided through a conclusion of special investment contracts (SPIC) — this practice appeared in Russia a few years ago but has not been applied everywhere yet.

SPIC is a contract between the investor and the state. A manufacturer, involved in such agreement (under the condition of investments at the amount of no less than 750 million rubles), gets a number of benefits, including tax mitigation and in some cases — simplified access to public procurement. The state, in addition to investments, may require some definite localization of the production from the companies.

The government of the Republic of Tatarstan will fully exempt individual producers of trucks from income tax until 2025 including. Photo: Maksim Platonov

The standard rate of income tax is now 20%, 17% of which is paid to the budget of the region and 3% — to federal one. The solution worked out by the ministry of industry and trade of Tatarstan provides two benefits. For all the companies involved in SPIC, the rate payable to Tatarstan budget will be reduced to 13,5%. But truck manufacturers entering into such contract will receive zero regional tax rate until 2025 (from 2026 they will pay 13,5%).

Daimler wants more

Tatarstan introduces benefits for a new project of KAMAZ, said an interlocutor of Realnoe Vremya. According to him, it is referred to the joint with Daimler plant of cabin frames in Naberezhnye Chelny.

KAMAZ and Daimler were building the plant with a total area of 68,000 square meters and worth about $3 billion since the spring of 2016. The construction was completed in October of this year; the plant is ready for installation of equipment, the press service of the Russian concern reported. The plant's capacity will amount to 55,000 frames a year, the products will be supplied on the conveyor of KAMAZ and for the production of Mercedes-Benz trucks.

Daimler and KAMAZ expect to receive benefits for the new plant, a source of Realnoe Vremya informs. The German investor is already building a plant of Mercedes cars in Moscow region, this project is also implemented using benefits of SPIC.

Tatarstan introduces the benefits for the new project of KAMAZ. Photo: Sergey Afanasyev

The Industrial Development Fund (the operator of SPIC) said that Daimler applied for assistance to prepare documents for conclusion of another contract. In September of this year, the package of documents was submitted to the ministry of industry of Russia. The application is being under consideration, the fund informed.

The representative of KAMAZ, Oleg Afanasyev, told that he was not ready to comment; the ministry of industry and trade of the Republic of Tatarstan did not respond to a request of Realnoe Vremya.

Two effects

From the point of view of strategy, it is a smart decision to give businesses a break on income tax, says Oleg Filippov, the director for business education at the department of engineering management at Ranepa. In the current situation it is probably the best thing that can help the business. The tax rate of 20% is too high, besides, the burden of value added tax has significantly increased for the companies in recent years, the expert says.

According to Filippov, the benefits can give two effects at the same time. First, companies will begin to have free money that will either be directed to dividends or invested in development (which is also beneficial to the region). Second, the burden reduction may improve the situation with transparency: now in the conditions of high load the companies are optimizing their taxes, trying to reduce their profits.

By Artyom Malyutin