Page 18 - bne IntelliNews Newspaper 280417

Opinion
April 28, 2017 www.intellinews.com I Page 18
BEAR MARKET BRIEF:
Russia’s 20/20 tax vision
Aaron Schwartzbaum in Washington DC
Catherine the Great once remarked that “taxes for the state are like sails for a ship. They serve to guide it to harbour, not to overwhelm it with their burden or keep it forever at sea and ultimately sink it.”
Now, the Russian ship of state is again facing rough economic seas. Given a combination of low oil prices, an Opec deal that has failed to raise them as much as hoped, continued sanctions, and a growing realisation that the economy faces a structural growth cap, tax reform is once again on the agenda.
Early 2017 has seen discussion of a post-election ‘tax manoeuvre’, otherwise known as the 20/20 plan, that could have significant consequences
for the economy – and tell us much about the priorities of the local economic leadership. Under- standing the plan, however, first requires a look at exactly how the Russian government collects its revenue, as well as how the tax system impacts on average Russians.
Death and nalogi (taxes)
Russia’s federal government collects four kinds of tax revenue: corporate taxes, excise taxes, value- added tax (VAT), and mineral taxes, predominantly the mineral extraction tax (MET, or NDPI in Rus- sian). As shown in the chart, revenues from each category are not split evenly: the MET and VAT made up some 84% of total federal revenue in 2016. Officials often cite a decreasing dependence of the federal budget on hydrocarbon revenues in recent years (down from a figure closer to 50%),
Tax reform is once again on the Kremlin's agenda.
and while this is mathematically correct, the driv- ing force behind this trend is lower oil prices, not calculated reform: the government is simply mak- ing less money on oil.
The regional revenue structure differs somewhat. Russia’s regions collect their revenue predomi- nantly from corporate taxes and a flat 13% income tax that was introduced in the early 2000s. Mineral revenue accounts for only a tiny fraction of region- al revenue streams.
Returning to the federal level, what is the recent revenue trend?
The biggest change from 2015 to 2016 was an increase in excise tax revenues, which was driven