The correct maneuver: as the sales tax would increase the quality of the state

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The current tax system is unfair to the region and gives too many benefits to large exporters and state-owned companies

Russian politicians and economists continue to comment on the latest tax maneuver, inadvertently voiced by officials and reduced to lower premiums on the payroll from 30 to 22%, with the increase of VAT from 18% to 22%. The Ministry and the Finance Ministry argue that the reform “is budget neutral” and that the Kremlin is dissatisfied recalls that the discussion itself has no subject, as Vladimir Putin promised not to increase the tax burden until 2018 (although the increase itself seems to be expected, and 2018 is approaching rapidly). In General, to understand the meaning pretty hard, but it seems that the Russian bureaucracy cannot renounce the paranoid desire to change for the sake of change, which increase the dependency of society and economy from the officials.

Expensive but good

Meanwhile, the taxes and fees were and remain a major element of economic policy and significant sore point for the Russian economy. A country’s tax system has two serious and deepening of the defect.

On the one hand, the tax burden does not represent the quality of the services provided by the society governance structure (according to the Paying Taxes report from PricewaterhouseCoopers 2017, Russia is on the 10-11-th place in the world in terms of taxation of the wage Fund and is significantly ahead of the EU in the General level of taxation). Here we are not talking about different kinds of sectoral and territorial levies, the number and extent of which is constantly growing.

On the other hand, the Russian tax system considerably skewed in Federal-regional context: if in the beginning 2000-x years the Federal budget has been reallocated about 49.5% of all raised funds in recent years this share steadily was at the level of 64-66% (for which we would like to thank the well-known liberal reformer Kudrin). This imbalance is more effective than any security forces destroying the Federal nature of the Russian state and puts the regional authorities in full dependence received in Moscow decisions.


In this situation, tax reform is certainly needed — but this, which is designed to resolve identified problems, and to make life easier for the bureaucracy or to allow officials “to report about the done work”.

Accordingly, the objective of reform must be the reduction of the tax burden, with the most radical labor (quite correctly noted, for example, that resource companies almost do not notice that the payment is due to the low share of wages in the cost structure, but the processing industry, high-tech sector and service sector are the losers), and the return to a balanced distribution of tax revenues to Federal and regional budgets (which will help to overcome budgetary bias in favor of power structures and to save on domestic health and education, whose funding transferred to the regions). If you understand the goals of the reform it is worth to emphasize two points.

First, it is essential (at least twice) to reduce premiums, especially considering the low efficiency of their use (France is much more committed pension system and health care system foniruyutsya by collecting 18%, not 30%). If the authorities deem that the reduction of insurance contributions to 12-15% too much bare the social sphere, it is necessary to adjust the payments industry factors that would increase the contributions in industries where the costs of recruitment does not exceed, say, 10% of the total cost. Today in Russia in social funds is going to about a 3.95 trillion rubles (hereinafter the data of 2015), but, as said Vladimir Milov, payments “Rosneft” and “Gazprom” are, respectively, about 50 billion and 100 billion rubles to Increase these payments in five or six times can mobilize an additional 600 billion rubles, and the extension of this principle to the primary sector will provide up to 700 billion rubles. the Remaining difference may well be closed by companies in other sectors of the economy that will lead from the shade of a considerable income of their employees now is simply not reflected in the tax statistics. This, again, the decline today is seriously overpriced insurance premiums makes sense only if the most competitive sectors of the economy and the total value will be significantly below the average European level (in other words, if the current rate will be reduced by half or more).

Secondly, it is necessary not only to abandon the VAT increase (which first of all will strike at the most competitive sectors of the economy, and affluent raw materials, able to reimburse the export VAT), but to abolish this tax and replace it with a sales tax. It is to replace, rather than complement, as was done in Russia in 1998-2003 and as some experts have suggested that to do it again. The abolition of VAT would lead to the loss of revenues of the Federal budget of 4.81 trillion (all figures budget 2015) and reduced its revenues from 13.66 trillion to 8.85 trillion based on the volume of retail trade in 2016 at 28.1 trillion rubles, at the rate of sales tax is 10% of the regional budgets would have earned of 2.81 trillion RUB (the amount of their income would grow at the same from 9.3 to 12.1 trillion trillion). In this notice, the Federal budget would be able to drop at least two thirds of interbudgetary transfers (682 bn), which would reduce the incomes of the regions to 11.7 trillion rubles in order to return to the distribution of funds between the Federal centre and subjects of Federation in the ratio 50: 50, there is one step: personal income tax (total fees — 2.8 trillion rubles) is divided in half between Moscow and the regions. Thus, the aggregate load is reduced by 2 trillion rubles or 2.4% of GDP.

It would be reasonable to provide the Tax code does not clear the bet level, and its range, say, from 7 to 12%, which will allow regions more flexibility in the formation of the income base of their budgets and to stimulate local entrepreneurs. An example can be the USA where in the conditions of real fiscal federalism, the rate of sales tax varies from zero to 10.5% where it is the most significant source of financial revenue in half of the States. In the tax can also highlight regional and local components, that will support first of all the most deprived in Russia budgets — budgets of large regional municipalities. Also note that the prevalence of modern cash registers will make it easy to administer the new tax.


As a consequence of these reforms, the net loss of the Federal budget will amount to about 3 trillion rubles to Cope with them in several ways. First of all, it is necessary to abolish most of the tax benefits today, according to former Deputy Minister of Finance Sergey Shatalov, make up 2.5% of GDP, or 2.1 trillion rubles, Almost half accounted for VAT and therefore will disappear with it, but even the elimination of the remaining will provide 1 trillion roubles of additional revenues. You will need to think seriously about prudent revenue collection from state ownership, including dividends of state-owned corporations (which can get you another 400-500 billion rubles). Finally, we need to begin to reduce government spending, primarily on “other issues in the field of national economy” (688 billion rubles in 2015, which mostly lurking inefficient investments), as well as the defense, security and the rule of law and “national issues” (of 6.26 trillion in 2015), which, given the crisis, it is possible to cut at least 15%.

Lower premiums up to 15% and an increase of such loads on large commodity companies will create incentives to expand formal employment and facilitate the work of entrepreneurs in high competition sectors of the economy. The abolition of VAT and the introduction of sales tax will reduce the total tax burden will make it more financially independent of the Russian regions and municipalities, and will require the prudent use of state property and budgetary savings. Unfortunately, hope for such a reform is possible only if the Russian government has sought to develop. And since it’s on a loop on stability, nothing like I would, alas, did not expect.

The authors ‘ point of view, articles which are published in the section “Opinions” may not coincide with ideas of editorial.

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