Page 54 - RUSRptApr17

Enter the tax maneuver, a plan that would effectively shift burdens within the tax system, increasing the VAT while reducing the burden on employers. Though the exact parameters of the maneuver have not been decided – it remains unclear whether negotiations are even happening right now – the VAT would be raised to somewhere between 20-23%, while insurance premiums would be reduced to similar range (hence the 20/20). There has been talk, although in much less concrete terms, of increasing the income tax to 15% along with introducing a minimal taxable income level: effectively an implementation of a quasi-progressive tax system.
Kirill Nikitin, partner at PWC and professor of tax policy at Moscow State University (MGU) explains the changes in much more concrete terms , describing how they effect an average Russian worker, Ivan Ivanovich. Right now, Ivan has an income of 100 rubles, and after taxes (13%) he brings home 87 rubles. For each paycheck he receives, his employer contributes 30 rubles (30% of 100) to Russia’s non-budgetary funds. Assuming he spends all of his income and does not buy alcohol and cigarettes subject to heavier excise taxation ( molodyets , Russians would undoubtedly tell him), he pays another 13 rubles in value added taxes. Nikitin argues that Ivanovich’s effective tax rate is 43%: the total taxes paid are 56 rubles (30 + 13 + 13), out of a potential income of 130 rubles (his salary plus the insurance premium). Under the 21/21 arrangement, the overall tax burden would be reduced to 40%.
Vova Ex Machina?
Accounts differ on the direct implications of the maneuver for the economy. Nikitin calculates that a 21/21 configuration would lead to a budget loss of 200 billion rubles ($3.56 billion). The Ministry of Finance sees a 22/22 configuration as profitable, with the budget to gain 186 billion extra rubles ($3.31 billion). Of critical note, however, are the indirect implications of the move: employers would find it cheaper to hire employees. That could both stimulate the economy overall, as well as bring labor out of the shadows. Russia’s government continues to miss out on revenue from a large informal sector, which grew to a record size last year . With less expensive employment costs, budget revenue from on-the-books employees could be significant – up to 500 billion rubles ($8.9 billion), according to the Ministry of Finance. On the other hand, few calculations seem to have been done on how an increase in consumer prices (what a VAT hike necessarily entails) might impact their already sluggish demand, especially if real disposable income continues to contract . And the inflationary consequences of the hike (2.4% in the middle-term, per Nikitin) might not enthrall the erstwhile guardians of Russian monetary policy.
None of these adjustments are planned until 2019, after the presidential election scheduled for March of next year. And for good cause: tax adjustments are politically dicey. Widespread, if small-sized, protests by truckers over highway fares are already a signal that even increases in indirect taxes may be politically fraught. This appears not to be lost on the Kremlin, with reports indicating that Putin upbraided in a letter a number officials for publically discussing tax plans. The present plan may be to wait and hope the economy improves before further discussion, but the fact that there has been any talk of tax increases, let alone with specific terms, is already a departure from the norm and signal of intent by economic planners. Tax discussions may also be a political opportunity for Putin to descend to the mortal political plane and publically rebuke an overzealous Finance Ministry, earning political credit
54 RUSSIA Country Report April 2017 www.intellinews.com