Russia, in need of ‘investment boom,’ to scrap capital gains tax on foreign investment

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Russia to scrap profit tax for foreign investors

ST. PETERSBURG, Russia — Russia will scrap the capital gains tax on long-term foreign investment next year in order to create a much-needed “investment boom,” President Dmitry Medvedev told a gathering of foreign businesses Friday.

Medvedev also vowed to loosen the state’s stranglehold on the economy by introducing more competition and — in a sharp reversal to the policies of his predecessor Prime Minister Vladimir Putin — reducing the number of state-controlled enterprises fivefold.

The decisions are timed to attract massive foreign investment, without which Russia’s oil-and-gas dependent economy — which shrank by nearly 8 percent last year — is doomed to stagnate, the Russian president said.

“Investment activity is one of the factors for investment development and successful modernization of our economy,” Medvedev said. “Russia needs a real investment boom.”

The 44-year-old president stopped short of addressing such widespread concerns as corruption, red tape and the judicial system, which investors pointed to as the main obstacles to doing business in Russia.

Still, Medvedev decried the state’s predominant role in Russia’s economy, which increased dramatically during the eight years of Putin’s presidency, and he resorted to vivid imagery to bring home his point.

“People often think that the person who picks apples does the main job, but in fact it is the one who plants the apple tree whose job is crucial,” he said.

“The state should not always pick the apples on its own. In a free economy there will always be people who will do it better and faster,” Medvedev said.

The president hopes to use innovation and high-technology to diversify Russia’s economy and prepare it for future generations.