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State Bid to Boost Stock Market Mass Appeal

07.06.2013 21:14 / vedomosti.ru

Vedomosti have been provided with details of Minfin’s plan to attract private investors’ money to the stock market. In this session, the State Duma may consider a bill on tax benefits for private investors, say Minfin sources.

The concept of boosting stock market appeal to private investors was formulated by Minfin in Tax Policy 2014-2016. The plan is to cool interest in traditional assets such as real estate and deposits by limiting related benefits, while increasing tax benefits for share investors. The key conditions is long-term investment: Minfin proposed to lift tax for the sale of shares owned by investors for over three years.

The ministry was not about to offer tax benefits to millionaires: the draft proposed a limit on tax-free earnings. Draft co-author and NAUFOR Chairman of the Board Alexey Timofeev says the most probable scenario has been as follows: investor deducts a share sales income of maximum RUB 3mn from his tax base, if the shares have been owned for over three years, and each new year of ownership allows another million roubles to be deducted. However, Minfin decided to raise the bar, continues Timofeev: a RUB 9 mn deduction for 3 years’ ownership, and another RUB 3mn per each additional year.

Minfin declined comment, but two ministry sources confirmed the new benefit amounts. RUB 3mn per annum represents a 10% income per USD 1mn invested, explains a source. The loss of income will be negligible: regions will lose a little, plus the key source of income tax are low-income earners with no money to invest; the rich pay little. The Ministry official recalls that Minfin grossed RUB 60bn extra from cancelling the 400 rouble tax benefit for those who earned under RUB 20k per annum.

Minfin will not limit the stock size eligible for the benefit. The early draft limited the amount of shares to 1% of company capital: the Ministry did not want major investors to use the benefit. “All the heavyweights will be filtered by the 9mn limit”, says a Minfin source.

The Duma will not be baffled by the benefits, said Head of the Financial Markets Committee Natalia Burykina: the benefit needs no limit whatsoever, the aim is to find long-term money for the economy, not turn the middle class into investors.

Today’s Russian market is not extremely attractive for private investors. The MICEX Index is at June 2012 levels, in March a mere 68,190 private investors traded at least once on the Moscow Exchange, while in the previous year there were a quarter more of them — 92,258.

There are 800k private accounts opened at Moscow Exchange, with another 500k mutual investor account owners in Russia today, states Timofeev. In the USA, there are some 90mn private investors, 94mn in China and 20mn in Brazil.

Active investors, trading at least once a month, hold some 80k accounts, others are owned by long-term investors, says Moscow Exchange Deputy Chairman Andrey Shemetov: “The benefit is for a large number of investors”, the cream of the middle class, enthuses Timofeev: few can afford to splash over USD 1mn on investments, and real estate is currently the preferred option, partly due to tax benefits.

The benefit may stimulate a huge inflow of investments, while long-term investments may soar 50%, says Finam President Vladislav Kochetkov: “3- year-plus shareholders are mainly employed by majors – and receive the shares as bonuses or buy them. These people account for 25-30% of our client base”.

The rich hardly need the tax benefits, says Taxadvisor Partner Dmitry Kostalgin: they use offshore schemes, nearly decimating investment taxes.

Long-term investors are a tiny percentage in Russia, where most shares are owned by oligarchs, who buy and sell through offshores, concurs Investments MD at BNP Paribas Investment Partners Vladimir Tsuprov, while tax benefits are unlikely to spark interest among private investors. Profit may even not be on the charts at all, he says: “Last year our funds made 20%, but you have to be in a constant search for new investment ideas, and average yield in Russia was close to zero”.

Margarita Papchenkova

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