Tie-out for investors
Russian government prepares temporary abolition of property tax for transport infrastructure organizations operating both new facilities and those under reconstruction. The state supposes that “having let off the leash” of transport organizations it ensures inflow of investments in creation of infrastructure facilities even amid the economic crisis.
Intolerable burden
Taking into account the experience of former global recessions, especially the Great Depression, one can acknowledge that many governments used to stimulate development of transport infrastructure so that the economy could have everything necessary for quick recovery when overcoming the crisis. Russian authorities seem to follow the same way through sacrificing part of budget revenue for the sake of transport connection development. The initiative of long-term abolition of property tax for transport infrastructure organizations operating both new facilities and those under reconstruction belongs to the RF Ministry of Transport. At the last meeting of the Government presidium the Ministry of Transport and the Ministry of Economic Development were given a task to present joint proposals by July 1, 2009. As it was reported earlier, tax relief might be approved for a period of 10-15 years.
According to Igor Levitin, RF Transportation Minister, the results of the study showed a considerable influence of the property tax (as well as land tax) on financial activities of business entities – sea and river ports, as well as airports. For example, property tax of RosMorPort FSUE will exceed RUR 4 bln by 2015 (20% of RosMorPort earnings. Such a tax burden will result in a considerable decline of transport organizations’ financial situation.
Looking for rich pickings
Igor Levitin thinks that today infrastructure is one of the most promising segments of the global investment market despite the crisis. According to the Minister, to develop transport communication in Russia it is necessary t attract private investments and to implement projects based on PPP principle.
At the same time experts note insufficient interest of investors to projects related to Russia’s transport infrastructure development.
As senior analyst of FC Otkritie Kirill Tachennikovtold PortNews IAA, “property tax is not the heaviest cost item for transport organizations though its abolition for a long period could become an extra incentive for the industry investments. Taking into account the deficit of investment into Russian infrastructure, we are positive about the possibility of such a decision.”
According to Dmitri Baranov, leading expert of MC Finam Management, this measure being prepared by the government, could compensate for initial budget losses having increased other tax revenue from transport organizations. “This measure could actually improve attractiveness of transport infrastructure facilities in different aspects. First of all, it could motivate actual and potential owners to invest in construction of new or reconstruction of the existing facilities. It is to have a positive impact on transport operation in the country and to increase cargo flow, which will finally return to the budged as other tax revenues. Secondly, such facilities will become more attractive for banks, which means, that banks will be more ready to take such facilities in pledge and provide loans for their construction /reconstruction. Thirdly, this measure could generate interest of investors, both strategic and speculative ones as they will see perfect perspectives of investing and acquisition of fast income from investment. At last, it will motivate regional authorities upgrade transport infrastructure of their region and transfer part f the facilities to investors. If this is undertaken we can expect increase of investments in transport facilities all around the country,” Dmitri Baranov told PortNews IAA.
Nothing ventured, nothing gained?
The initiative of tax remissions as itself invites no questions but market players may be concerned about their execution and possible cancellation after a certain period of time. Let us remind, such a concern was expressed by investors when discussing another initiative (that of the Federal Customs Service) on transfer of customs points towards RF border. FCS encouraged them to invest in creation of new terminals at involved territories.
It is quite a risk to invest in creation of new transport infrastructure facilities without being sure that the promised privilege will not be revised in a couple of years. The risk is even higher in the context of uncertainty when it comes to further development of the global economic situation and the state’s claim to fulfill social commitments. If the crisis drags on, budget revenue may not be sufficient while effect from investments into transport infrastructure may not appear on time. So much depends on the ability of the government to convince the market that the state is serious about its intentions and determined to promote the announced course.