Development of investment tax deductions system in the Russian Federation As a mechanism for stimulation of investments in securities

In 2015 the Tax ^de of the Russian Federation introduced a new kind of tax deduction for individual income tax, that is, investment tax deduction. It was aimed at reducing the tax base for transactions with securities in three different ways. For the purpose of this paper, investment tax deductions are classified into the following categories: - Investment tax deductions as a benefit for the long-term holding of securities; - Investment tax deductions related to the opening of individual investment accounts (types A and B). Besides, the author analyzes distinctive features of the mechanism of granting investment tax deductions with regard to citizens of the Russian Federation and presents three schemes of investment tax deductions. The fundamental difference between relief applied to long-term holding of securities and individual investment accounts is determined. Particularly, in the first case investors' funds are blocked in certain securities for three years. In the second case, funds are also blocked in a separate account for three years, but not in specific instruments. In addition, funding under the individual investment accounts is not limited to securities, for instance, investors can place money in bank deposits and purchase foreign currency and derivatives. The author indentifies types of investors and recommends types of financial instruments for each type of investment tax deduction. With this in mind, using the relief for long-term holding of securities and individual investment account (type A) implies conservative investment. Whereas, using individual investment account (type B) is associated with speculative investors. Bonds are defined as a dominant instrument in the framework of investing in individual investment accounts for several reasons: - They have a high yield; - There is a large number of reliable issuers; - The number of bonds issues on the domestic market is significant. Statistical data regarding the opening of individual investment accounts at the end of 2015 are presented. The author concludes that investment companies dominate in this market segment. The total amounts of funds in individual investment accounts are estimated to be about 8,5-9 bln. rubles. The average amount of funds in an investment account varies around 100,000 rubles. The author presents views of other authors on the development of individual investment accounts system and author makes optimistic forecasts regarding the development of this financial instrument. However, controversial issues related to investment tax deduction legislation are revealed. These issues are predominantly connected with maintenance of individual investment accounts. Lack of information on individual investment accounts, poor awareness of Russian citizens as well as need for financial advisors are also named as hindrance to the development of individual investment accounts system.

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