Automakers Skeptical of Tax Breaks

Industry analysts have responded cautiously to a recent presidential decree that allows the government to offer im port tax breaks to big foreign investors in Russia's auto industry. Analysts said the tax breaks may be hard to win because they will depend on meeting tough targets for locally made components.

The decree offers customs tax breaks to foreign entitie s investing into auto production. Automakers must form ajoint venture with at least 10 percent Russian participation. To retain the privileges, the producers must, within five years, use at least 50 percent Russian-made parts in their cars. "The decree will give a stimulus to developing not only the automobile industry, but other sectors of the Russian economy as well," Deputy Prime Minister said at a news con­ference. Still the decree does not specify what customs benefits are on offe r, and investors must work out individual details with the government.

An industry expert with United City Bank said the government will likely decide benefits on a case-by-case basis, and the decree sets the stage to reward those who produce cars in Russia, rather than importing parts and assembling themin Russia. Companies that stand to benefit fromthe decree include Italy's Fiat, which is negotiating an $800 million car plant joint venture with GAZ in Nizhny Novgorod, and Opel division, which has plans to produce its models at AvtoVAZ plant. General Motors praised the decree but said it may be difficult to obtain 50 percent of parts locally. Vice president of GM Overseas Distribution Corp. said: " The greater the incentives, the greater the likelihood that we reach the localization goal."

The government has extended carrots to investors before. In 1994, it promised tax holidays for investments of more than $100 mil. The gesture has turned out to be unreliable and dif ficult to enforce.

GM spokesman said the best news for foreign investors would be a realistic tax regime. "Companies are less interested in specific exemptions and more interested in having a tax structure that works”.

                                                                                                                             J. Grocott

Practicum 6.10

Translate the italicized parts of T ext 6b into Russian

Practicum 6.11

Practicum 6.12

III. Communication Practice

Team work

As a spokesperson for a foreign automaker, you are to look into the recent Russian presidential decree on import tax breaks. You are meeting with Russian senior customs officers to investigate into the initiative. What interests you most is whether the new tax incentives are realistic. Practice pushing for an answer strategy to get the information, as it will influence your investing decisions.

PROGRESS TEST 6