Aug 26. VAT reduction to 12-13% would result in a drop in tax receipts by 1.1-1.3% of GDP under the most realistic scenarios in the short-term outlook with an ambiguous impact on business activity. This is the conclusion reached by Russia's finance ministry on the basis of an analysis conducted as part of the draft budget strategy for the period until 2023 that was posted on the ministry's website. According to a ministry source, the document was submitted to the government. The finance ministry reviewed three model scenarios for a decline in budgetary receipts. The first suggests that following VAT reduction to 12% prices will go down by the amount of reduction (all benefits from the lower VAT rate will be enjoyed by consumers), the second scenario – and the most likely – implies that prices will drop 50% of the figure of VAT cut from the current 18% (i.e. by 3%, consumers and producers will share benefits from VAT reduction) and the third scenario is that prices will remain unchanged, with all benefits to be enjoyed by manufacturers. Assessing the last two scenarios as the most likely, MinFin quotes the results of a poll conducted among entrepreneurs by the laboratory of conjunctural polls of the Institute of Transition Economy at the order of Delovaya Rossiya. An overwhelming majority of respondents said they are going to allocate funds generated from a cut of the VAT rate to capital outlays. "Taking into account the fact that capital outlays are made using net profit, the entrepreneurial community, first, does not expect prices to drop following a decline in VAT and, second, it intends to generate profits on the back of a contraction in the tax burden, rather than allocate cash saved to cut prices and (or) raise wages" – MinFin concluded.