Michael Deppler, the director of the European Department of the International Monetary Fund (IMF), told the Vremya Novostei newspaper: Even if they [tax cuts] do accelerate the economic growth, it will not last long, as interest rates will increase.
Deppler who is also in charge of the IMF-Russia relations commented on the Russian government's plans to reduce the VAT flat rate from 18% to 13% as part of the current tax reform. Deppler said the IMF did not deem it expedient for Russia to reduce the rate.
VAT flat rate reduction from 18% to 13% will only decrease budget revenues by about 1.5% of GDP in 2006 and increase deficit, he said.
He added that the projected cuts in the VAT flat rate would affect distribution of incomes among people. The richest 10% of the Russians spend nearly half of their incomes on the goods that charge the 18% VAT rate, whereas the poor 10% of the Russians spend merely a quarter of their incomes on such goods. Therefore, if the VAT rate is reduced, it would mostly benefit people with higher incomes, said Deppler.
