Russian financial industry gets rid of value-added-tax, but experts split over the effects

As of the start of next year Russian asset managers and other financial companies will no longer have to pay value-added tax on remuneration they receive for their services, placing them on an equal footing with banks.

The tax break will affect all financial market players from fund managers, registrars, and depositories, to dealers, brokers and clearing houses.

The law is part of legislation passed by Moscow late last month, memorable for introducing exchange traded products to the Russian market for the first time.

Industry practitioners are, however, split on whether it will be end-clients who ultimately feel the advantage of the move.

Vladimir Kirillov, chief executive of TKB BNP Paribas Investment Partners, considers the tax change to be a positive development, which may provide a push to Russia’s struggling mutual fund industry.

Total assets under management in Russia’s mutual funds are barely $4bn, and the industry has been losing money for the past few years.

A reluctance of Russians to save rather than spend, coupled with high interest rates on bank deposits, has stood in the way of the industry’s development.
Kirillov thinks tax incentives are a good way to improve the competitiveness of fund managers in this light.

Yet Russian news source Kommersant reports other industry professionals are more sceptical that the clients will feel any of the advantages of the new law.

It quotes Ivan Hamenushko, senior partner at Russian law firm Pepeliaev Group, saying: “It is possible that the remuneration of asset managers will decrease with the abolition of VAT. But since clients are used to paying a set fee, it is more likely that managers’ income will increase.”

Dmitri Kostalgin, owner of Russian advisory firm Taxadvisor, adds: “Unfortunately, contemporary Russian history shows that abolishing or lowering taxes has no effect on the cost of goods and services.”

But he adds that there is hope that the financial markets will not follow this trend, since the advantages for clients could be significant.

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