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Shares vs Deposits

28.10.2013 20:18 / vedomosti.ru

First Deputy Prime Minister Igor Shuvalov held a meeting last Wednesday to finalize Tax Code and Securities Market Act amendments equalizing tax rates for investments in shares and bank deposits, according to two sources confirmed by Shuvalov’s office. Reportedly, the amendments are due for enactment in 2014. A source believes that to speed the amendments through the State Duma, they could be introduced by deputies.

The amendments have been drafted by the MIFC Taskforce and Minfin with the aim of boosting the investment appeal of shares as opposed to deposits and real estate.

Sources say tax benefits will be lost by those who invest in high-yield deposits. Today, interest on deposits is tax-free, if the rate does not exceed the CB refinancing rate +5 b.p. for Roubles / +9 b.p. for foreign currency deposits. The draft lowers the bar and taxes all above the threshold of the CB refinancing rate +3 b.p. for Roubles and 7% interest per annum for foreign currency deposits. Long-term investments are stimulated through an individual investment account (IIC). The investor who opens it for a minimum of three years is entitled to an annual tax deduction equal to the invested sum (but a maximum of RUB 400k) or equal to IIC profit (max. RUB 3mn per annum). The tax discount covers income from the sale of securities traded on the Russian market and open-end share investment funds, owned for over three years.

Two sources present at the meeting say control over the account registrar is still not assigned to any authority. The current version of the bill says it should be done by the CB, however, a SRO or the Federal Tax Service could be reportedly put in charge of this.

Amendments could give a substantial boost to private individuals’ interest in share investment, says Chairman of the National Stock Market Participants Association Alexey Timofeev. Market participants, however, call these amendments insufficient. The community wants to see an investment strategy with a higher yield than bank deposits, says President of RTS Non-commercial Partnership Roman Goryunov: “The key objective is economical motivation for issuers to have a high amount of their stock in circulation on a Russian trading floor”. Gazprombank’s Maxim Maletin agrees that investors will not flow en masse to the Russian share market until they are offered higher yield than in banks. “High interest on deposits will not last forever, things are bound to change”, he enthuses.

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