Central Bank of Russia thus far unable to retain VAT exemption for bankcards; Finance Ministry keeps removal in amendments for second reading

MOSCOW. Nov 12 (Interfax) - Russia's Finance Ministry maintains plans to eliminate the VAT exemption for bankcard servicing, estimating annual budget revenue at 30 billion rubles, State Secretary and Deputy Finance Minister Alexei Sazanov told reporters.

The VAT exemption for bankcard transactions was implemented on January 1, 2006, to encourage cashless payments. In October, the State Duma in the first reading adopted a package of amendments to Tax Code No. 1026190-8 of the Russian Federation, which, among other matters, has eliminated the VAT exemption for bankcard servicing, processing, and acquiring services.

When finalizing the bill, the Central Bank of Russia proposed removing the provision, citing the risk of increased costs for banking services, a source familiar with the regulator's position told Interfax. The Central Bank has warned that this would increase transaction costs, thus rendering cashless payments less attractive to consumers.

"The government introduced amendments [during the bill's second reading], and the provision imposing VAT on these transactions has been retained," Sazanov said on Wednesday.

Annual budget revenue from the provision is estimated at approximately 30 billion rubles, he said.

At the end of October, Taras Skvortsov, Sberbank deputy management board chairman and CFO, said that the most severe version to eliminate VAT exemptions for bankcard servicing could cost the banking sector more than 200 billion rubles.