Ayrat Khayrullin predicts brain drain from Tatarstan's IT industry

Tatarstan's anti-crisis incentives for IT sector

Following the rest of the regions, the government of Tatarstan launched a new initiative to support the IT industry, which is going to be included in the second reading of the draft republican budget for 2021. On 17 November, at the meeting of the budget committee of the State Council of Tatarstan, the head of the minsitry, Ayrat Khayrullin, presented the draft bill “On amendments to the law of the Republic of Tatarstan 'On the establishment of differentiated tax rates for taxpayers applying the simplified system of taxation”, which aims to support SMEs in the field of information technology.

Anticipating the surprise with a package of tax benefits, Ayrat Khayrullin noted that tax breaks have been adopted in 24 regions of the Russian Federation, where Tatarstan IT companies have already begun to migrate. The response measures, according to the minister, will help to stabilise the “viability of small and medium-sized businesses” that are already using the tax maneuver, as well as attract new companies to the industry and generally maintain the investment attractiveness of Tatarstan for the IT industry.

The head of the ministry proposed rather modest support tools in comparison with other regions. For example, it is proposed to reduce the rate under the simplified tax system from 5% to 1% for those who pay from income under the simplified tax system, as well as from 10% to 5% for those who pay from revenue. The main criteria for the benefits user are as follows: at least 90% of the company's income must be received from the main activities of software development, consulting services, that is, to meet the codes No. 62 and No. 63 under the classification of the Russian Industry Classification System. The annual turnover should not exceed 150 million rubles, and the number of employees — 100 people," said Khayrullin. However, compliance with these primary conditions is not enough because then the benefits can become widespread among the industry's enterprises.

With mandatory “connection” with IT parks

The main requirement is to be a resident of the technopark and conclude an agreement on innovation activities with it. According to Ayrat Khayrullin, tax benefits will be available to those who sign an agreement with technology parks in the field of high technologies and enter the register of their residents. Given that the IT Park in Kazan is 100% loaded, and irs “colleague” in Naberezhnye Chelny — 80%, the potential resident is not necessarily need to be physically present in the industrial park and is allowed to be a remote resident, said Minister Ayrat Khayrullin at the committee meeting in the State Council. “The draft resolution on the procedure for concluding agreements on innovation activities has been developed and will be sent for interdepartmental approval," he added

Tax benefits are proposed to be introduced from January 1 next year. They will be valid for three years — until December 31, 2023. The shortfall in revenue due to the introduction of tax benefits, according to the ministry of finance, will amount to only 15 million rubles a year (how much the industry brings to the treasury was not specified).

“We believe that such a long period of time will create a favourable environment for small IT companies, stabilise their position and ensure economic growth in the field of information technology," the minister explained.

It should be noted that the benefits for technoparks were extended for exactly the same period. They were set a preferential property tax rate of up to 0,5%, and the shortfall in revenue amounted to 235 million rubles.

Tatarstan is facing an outflow of brains

Arguing for the need to introduce measures to support the IT industry, Minister Ayrat Khayrullin made it clear that the republic even lags behind other subjects that quickly responded to the pandemic and eased the tax burden. According to him, Bashkortostan, Ulyanovsk Oblast, Krasnodar Krai were the first to apply the measures, which felt the influx of residents from neighbouring regions, including Tatarstan. They were joined by Tyumen Oblast, Perm Krai, Udmurtia, and Mordovia. They also have an advantage in the fact that they employ the main customers of the IT industry — oil and oil refining companies, proximity to which guarantees firm orders, the minister added. He recalled cases when companies left Naberezhnye Chelny, preferring Krasnodar Krai.

Khayrullin promised the deputies that if the benefits are accepted, Tatarstan will have the opportunity to attract about 200 new companies, which will lead to about 3,000 new jobs. In his opinion, within two years the companies will move to Tatarstan, and then additional places and revenue will cover the losses. These benefits can also be used by large companies that will apply to the Federal Tax Service of Russia before December 31 to switch from the general tax regime to simplified one, Khayrullin added.

“The adoption of this draft bill will also contribute to the comprehensive development of the IT industry throughout the republic — in all districts and cities. Thus, it will finally consolidate the title of the leading region in the field of digital technologies for Tatarstan," he concluded.

Deputies: remove “corruption gateway”

Almir Mikheev, member of Fair Russia party, criticised the selective approach to granting benefits. “Either we give benefits to everyone on the territory of the republic, following the example of our neighbours, or we do not give benefits to anyone," he said categorically. In his opinion, the mandatory requirement for businesses to enter into agreements with the technopark creates a “corruption gateway”, when a separate clerk would decide how much to pay taxes to the company — at the usual rate of 6% or at the preferential rate of 1%.

In response, Ayrat Khayrullin objected that not everything would depend on the clerk of the technopark, and “corruption risks will be leveled by the expert community”. Probably, he meant that the technopark administration would make a collective decision on who is worthy to become a resident. At the same time, Ayrat Khayrullin referred to the best practices of Skolkovo, which was the first to introduce such practice of selecting residents with subsequent benefits.

“Best practices or not, but so far we see that no one has invented benefits in Silicon Valley because it is profitable for other reasons," Almir Mikheev disagreed. According to him, now there is a dangerous situation for corruption, so it is better to develop in detail the general conditions for all.

Mikheev also did not agree with the introduction of restrictions on the number of 100 people. “This is a far-fetched approach. Why should companies split up [business] now, introduce barriers that will circumvent and deceive," he reasoned. “I do not favour benefits, but if you already grant them, then do it to everyone," he repeated. In conclusion, he suggested using the right of legislative initiative to amend federal legislation, but this idea was rejected by the majority of the committee as too long but businesses need support right now.

The head of the budget committee, Leonid Yakunin, drew the red line under the discussion. According to him, the initiative is worthy, it can be considered and accepted. As a result, the deputies voted for the adoption.

Preferential list of ministry of digitalisation

Later, the press service of the ministry clarified that in accordance with the draft bill, the tax rate of 1% is proposed to be set for:

1. IT companies registered in Tatarstan;
2. IT companies that are residents of high-tech technology parks;
3. IT companies in single-industry towns.

“It is expected that this tax practice will not only help to keep Tatarstan IT companies in the republic, stopping the process of business migration, but also allow Tatarstan to become one of the most attractive regions for IT companies from other regions of the country.
In turn, IT companies will have the opportunity to use the released tax amounts to increase the working staff, develop competitive digital platforms and software products.

The adoption of this draft bill will also contribute to the comprehensive development of the IT industry throughout the republic — in all districts and cities. Thus, it will finally consolidate the title of the leading region in the field of digital technologies for Tatarstan," the press service of the ministry noted.