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The following item is a Memorandum of Economic and Financial Stabilization Policies of the government of Russia, which describes the policies that Russia intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Russia, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Memorandum of the Government of the Russian Federation
and the Central Bank of the Russian Federation
on Economic and Financial Stabilization Policies Supplement

July 20, 1998

1.  As the result of the decisions taken by both chambers of the Federal Assembly at its session on July 15-17, a few changes have been made to the program. Accordingly, this memorandum supplements and modifies the Memorandum of Economic and Financial Stabilization Policies dated July 16, 1998, describing how the government will be addressing the policy issues in relation to the personal income tax, the land tax, and the Pension Fund finances.

2.  On the personal income tax, the measure to expand the base and shift 20 percent of the tax to the federal government was rejected by the Duma last week. The Duma will be asked to reconsider their decision and approve this law in a special session in August. Implementation of this measure will be considered during the next review.

3.  On the land tax, the measure to increase land tax rates was also defeated by the Duma. Instead, a Presidential Decree has been issued which increases the land tax rate four-fold as agreed in the program (although the Decree does allow for a lower rate increase than originally envisaged for urban land).

4.  On the Pension Fund, the government has decided to pursue an alternative strategy to bring the Pension Fund back into balance. A government resolution has been issued that introduces, as of August 1, 1998, a temporary 2 percent payroll tax surcharge on the employee contribution to the Pension Fund. This same resolution will also expand the base for the employer contribution. The surcharge will remain in place as long as the Pension Fund remains in deficit or new pension arrears are being accumulated. In addition, legislation will be proposed to the Duma in the special August session, that will both expand the base for both employee and employer payroll tax contributions to include wage and nonwage income, and will shift the burden of the tax from employers to employees. Should these measures prove insufficient to restore Pension Fund balance by September 1, 1998, the government will either reduce pension benefits or further increase the payroll tax surcharge (in order to restore Pension Fund balance) as a condition of the review scheduled for September 1998. To this end, the government will provide information on the September 1, 1998 position of the Pension Fund by September 15, 1998.