Depreciation premium is good, but investment deduction is better!

It is possible that within the next 10 years taxpayers will be able to decrease income tax by an amount of investment costs. The corresponding bill is being under consideration in the State Duma.

It is entirely reasonable that the bill excludes objects of capital investments from the list of depreciable assets and deprives taxpayers of the right to recognize a depreciation premium in this regard.

As indicated in the document, investment deduction will be provided by federal subjects of the Russian Federation. Their competence also includes determining categories of taxpayers (applicants for deduction), components of investment objects, deduction amounts, as well as the possibility to carry forward an unused part of deduction for future periods.

At the same time, investment deduction may apply only to fixed assets from the third to the seventh depreciation groups. Moreover, a taxpayer's decision to use the right to investment deduction may not be selective and should apply to all objects.

Deduction applies to both regional and federal parts of tax. According to the bill, 90% of costs at the most should be charged to acquisition and modernization (reconstruction) of fixed assets at the expense of the regional part of tax, and the remaining costs of 10% may be fully charged to reduction of the federal part.

Income tax may be decreased by an amount of deduction in calculation of tax for the period in which a fixed asset was put into operation or in which the original value of the object was changed.

The current version of the bill also provides for the upper limit at which investment deduction may not be applied and should be carried forward for future periods.