Page 25 - RusRPTOct20

But Mishustin has squeezed out most of the easy gains from running the system better. Now the Kremlin is planning to start raising tax rates.
New sources of revenue
The coronacrisis has provided the Kremlin a golden opportunity to increase some taxes that it has wanted to hike for a while, but was reluctant to change due to the negative impact they would have on the government’s already shaky popularity.
The Kremlin already introduced a 2pp hike to VAT at the start of last year as a way to raise more money; VAT accounts for about a third of Russia’s budget revenues by itself. It also jammed through an increase in the retirement age in 2018, hoping to bury the bad news by announcing the change on the day the Russian nation football team played a game during the World Cup, a ploy that failed, as the population was not happy with the change.
Now Russia is in the midst of an epidemic the Kremlin has taken the opportunity to hike some more taxes. Amongst the changes already announced is an introduction of personal income tax on interest earned on bank deposits, a shift to a (mild) progressive income tax rate, a review of double taxation agreements with offshore zones aimed at increasing tax collection from dividends paid by Russian entities, and a rise in excise taxes on tobacco.
The increase in income tax is particularly radical, as on taking office in 2000 the first thing Putin did was to introduce a flat 13% income tax on workers and a 24% flat rate on corporates. Those taxes have not been changed in 20 years, despite the fact that incomes have soared and the economy has more than doubled in size. The flat income tax has been the bedrock of Putin’s policies on income tax so the introduction of a progressive tax on incomes is a very big change.
Still, the Kremlin is being very cautious, as the threshold for higher taxes has been set so high only the very rich will be affected. The plan is to hike the new “top end” income tax by a mere 2pp to 15% for those earning more than RUB2-3mn ($29,000-42,000) annually, when the per capita income in December 2019 for the vast majority of Russians was $6,533, according to Rosstat.
The Kremlin is also looking elsewhere for fresh sources of revenue. The raw materials sector is another obvious honey pot, and a lot of work has already been done here too with changes to the mineral extraction tax (MET) and the so-called tax manoeuvre that will in effect end subsidies to Belarus that has been the cause of constant conflict with Minsk over the last year.
And behind all these changes is the hope that they will be temporary. The government is planning to get through the next three years but after that the expectation is that oil prices will recover from their recent fall and the government will be flush again.
25 ​RUSSIA Country Report​ October 2020 ​ ​www.intellinews.com