Crimea Offers Scenery and Tax Breaks; Russian Business Unconvinced
Published: May 30, 2014 (Issue # 1813)
In an effort to jumpstart Crimea's faltering economy, a government plan could offer tax breaks and other juicy business conditions on the peninsula for the next half century — but even this may not be enough to attract businesses to the badly run-down region.
Russian politicians began talking about creating a special economic zone in Crimea almost immediately after the referendum on March 16, in which more than 90 percent of voters supported leaving Ukraine to become Russia's 22nd republic.
"Our aim is to make the peninsula as attractive as possible to investors, so that it can generate sufficient income for its own development," Prime Minister Dmitry Medvedev said in early April, RIA Novosti reported.
The legislation, which is currently under development in the Economic Development Ministry, provides truly appetizing conditions: residents of the special economic zone are freed from property taxes, land taxes, transport taxes and federal profit taxes, Gazeta.ru reported, citing a copy of the document. These conditions are sure to pique investors' interest, although in the current draft only the largest players will qualify. The price of becoming a resident eligible to receive the zone's privileges costs 150 million rubles ($4.3 million), putting the status effectively out of the reach of small and mid-sized businesses.
"Crimea is a tourism and service zone, the local population earns most of their income through small businesses. The entry ticket should be affordable," said Andrey Goltsblat, Managing Partner of Goltsblat BLP. This issue is already receiving attention: Russian business lobby group Delovaya Rossia has proposed lowering the limit to 70 million rubles ($2 million) for medium-sized businesses and 20 million rubles ($580,000) for small businesses, co-chairman Andrey Nazarov said.
But if the legislation is to achieve its aims at all, it will have to overcome one crucial obstacle that has become the elephant in the room during political and business debates over Crimea. The regions' social and transportation infrastructure has received essentially no investment since the fall of the Soviet Union, and would now be hard put to support an influx of demanding modern businesses.
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