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New Real-estate Tax on Luxurious Apartments
March 13, 2007 20:21

Very soon a new real-estate tax may be introduced in Russia, the tax, which was originally thought to redress social injustice, to oblige rich Russians to pay more for their apartments. However, the true consequences the tax will cause can hardly be predicted, as it is common practice for the Russian government to introduce a tax without proper preparation works.

Russian civil servants obviously think that only rich people can own big apartments in fashionable districts, that is why the new tax isn’t planned for 90% of the country’s inhabitants, whose apartments’ size matches the “tax-free minimal living room”. The Russian Ministry of Finance promises, that the new real-estate tax, which is by the way to come into force after 2008, will provide disadvantaged population with particular privileges and low tax rate. All this would better be true, otherwise the rent taken for a standard apartment may increase by 85 times.

The idea of the new real-estate tax has been discussed for several years and basically the tax should be introduced: in Russia well-to-do businessmen pay for their apartments as much as low-income people do, there is simply no real-estate tax in the country. Today the majority of Russians pay a token tax for their privatized flats, about 150-300 rubles a year ($6-11) per a one-roomed apartment. Nevertheless, some people have to pay more, if the apartment has been acquired recently at the market price. Therefore, the Ministry of Finance suggests fixing max rates at the Federal level and allows local authorities to choose the rates they find suitable for their regions, within reason of course.

 The government created the notion of the “tax-free minimal living room”, which will approximately make up 15 square meters (161,5 square feet) per person, and if you are unlucky to own a bigger apartment - be ready to pay. However, the changes will no way affect the disadvantaged population.

The idea itself is wonderful: Russian tycoons and businessmen will pay more taxes to the Russian budget, but there are still some unsolved problems about the new tax. The civil servants consider big and well-located apartments to be luxurious. Taking this into account, it’s not hard to imagine a small, almost “destroyed” flat in the centre of Moscow with an old lady as an owner. Her status will let her get the said privileges, but collecting all the documents due to Russian red-tape will take a great amount of time and very often is beyond power of a healthy person, not an old lady.

There is one more thing the designers of the tax overlooked: good apartments are not only acquired, sometimes they devolve to new owners from their relatives. It should be mentioned, that working people have no privileges and will have to pay from hundreds to thousands of dollars for extra square meters. In this case the “happy heirs” have the only way out – deprivatisation (not a cheap procedure by the way). The new real-estate tax will not apply to socially rented apartments.


Olga Pletneva

Tags: Russian real estate     

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