Rubles Per Person and Estate Taxes: Appealing to Foreign Investors

The Financial Times reported that the head of one of Russia’s leading sports agencies, Kirilenko, had met Vitaly Vaykhonko, the founder and managing director of Ufa. During the meeting, Vaykhonko proposed increasing Ufa’s budget to attract a new sponsor, which would take Ufa in another direction. Vaykhonko hoped that the proposal would help the struggling sports agency, which has seen its annual income decline in recent years. The suggestion was, according to the Financial Times, “one of the most radical moves” by a sports agency in Russia since its founding.

“The idea behind this proposal is that if the audience and capital came from abroad, we will be able to maintain our support at very low levels, which might even lead to the dissolution of ufa,” Vitaly Vaykhonko told the newspaper. “The financial results of ufa have been satisfactory but we need more revenue,” he added. “A proposal of increasing the capital will help us reduce our expenses.”

Vaykhonko explained that the proposal was in no way connected to the presidential hotel deal. “This is not an act of bonding between a business entity and a country,” he told the publication. “The proposal only concerns the use of foreign capital in raising funds for the operation of ufa.” In addition, Vaykhonko told the paper that he had met with members of the lower house of the parliament, and that he expected the proposal to be passed within the next few days. The newspaper reported that Vaykhonko and the members of the lower house had discussed the possibility of the capitalization of ufa in rubles per person, with the use of state banks instead of private Russian banks. Vaykhonko did not elaborate on the nature of his discussions with members of the lower house.

This is not the first time that capital from abroad has been used to fund the activities of ufa. A few months ago, President Dmitry Medvedev proposed raising capital through ufa for renovation and expansion of Russia’s economy. At that time, Medvedev expressed hope that the move would help boost the economy. “By means of this measure, we can regain the lost popularity of Russian tourism,” he said. According to the Financial Times, Medvedev indicated that he expected foreign companies to contribute around $1 billion over the next five years towards the capitalization of Russia’s economy.

The rubles per person capitalization proposal is only one of a number of measures that the authorities are taking in order to attract more foreign investment into the country. In recent years, Russia has seen a rapid surge in the number of foreign companies pouring into the country, resulting in a simultaneous surge in the price of oil. In reaction to the inflationary driven rise in prices of goods and services across the country, many investors have moved their money abroad, either to offshore investments or to Russia itself where they can buy cheaper goods and services.

The rubles per person proposal is just one of several such moves by the Russian government in an attempt to attract more foreign investment into the country. Another popular initiative involves a reduction in the inheritance tax rate. The European Union and United States have made similar moves recently. Although experts have raised doubts about the efficiency of these measures, the government appears to be determined to implement them. As the economy becomes more intertwined with the rest of the world, the government will inevitably need to look to other sources of revenue. Cutting the inheritance tax or increasing its tax burden for other categories of income is therefore not something that the Russian government could do alone.