Activation of discussion about tax reform in Russian government is evidence that in 2019 year, after president elaborate, Russia will live in different tax conditions. But, there isn`t one good script of reform for everyone. Initiatives of Ministry Finance to increase personal income tax and to cut insurance fees to one level in 22 per cent attracted criticism of social part of government. The unpopular idea of increasing tax of individual persons has been discussing informal. But under any form of tax decision, it is unlikely to be an incentive for economic growth without real provision of state guarantees for property rights for business, said Yury Mirzoyev, CEO of “National Law Company “Mitra”.
Isn't it likely, that modern tax initiatives of governments are analogous to chess zugzwang: any step is bad? We can estimate about it because some people from government are against initiatives of Ministry Finance and The Ministry of Economic Development of the Russian Federation.
You are right in part. In conditions when economic has problems, budget is empty, election pledges aren`t done, nobody want to cut budget`s charges and nobody can improve their effectiveness. In this situation any step of government is like motion on the minefield. Is somebody knows a right decision of problem, the situation will be improved.
What kind of tax actions will be realized on your opinion?
I think that the real steps in this situation are increasing pressure on the final customer, buyer. Besides, I think, that will be right and circumstantial growth of property tax in the condition of reducing tax on the oil industry resulting from depreciation of oil and deficiency of expectations on increasing. If the situation continues, the day “X”, when tax should be increased, will be in the near future. In fact, this day has already started. Today all people talk about tax reform, which determines new rules on the new presidential term in near six years. In 2018 new taxes will be accepted. In 2019 we will feel such amendments. In point of fact, it`s about devaluation of taxes, which suspects substitution direct taxation for circumstantial.
What's the point?
First of all, circumstantial taxation can be administered easier. VAT is collected well, and it will be better due to system of electronic tax control. Now collection VAT is 94 per cent. Minister of Finance, Anton Siluanov, says about increasing of collection to 98 per cent.
Will collectability of VAT reduce due to increasing its rate to 22 per cent?
I think that won`t reduce, because the process of VAT assessment is clear for tax authority. Only one potential problem is growth of VAT amount from the budget for exporters. Particularly, one of the main tasks of increasing VAT is of export industries of economic. Beneficiary of such measure (besides oil industry) will be agriculture. It will take benefits from cutting insurance fees, taking into account pressure on the labor compensation fund. Although, at the same time we can expect increasing of grey import. But we need to take into account disadvantages of increasing VAT: for population – first of all, accelerating inflation, rise in value of import production; for business - rise in value capital goods, appreciation of output products, and in such conditions it can make influence on request. But if the government want to choose best of a bad lot, it`s increasing VAT.
Why is the government sure that cutting insurance fees will be goal for economic growth or remove from shadow the salaries?
I don`t have such confidence. Big organizations, which pay in general “payroll salary”, will do it according rate of insurance fees -20, 30, and 35 per cent. But small and medium business doesn`t pay such fees. For it 20, 25, 30 are very big amount. If insurance fees are reduced to 10 per cent, tax base will be exceeded and part of labor compensation funds will come out of the shadow. In case of cutting it on 8 percent, we can see settling out income of Pension fund. It`s difficult to say about of results of this situation.
The main thing that one tax reform will hardly started economic growth. Without real protection of right property in the country tax measures won`t be able to change economic situation. I`m sure, if the taxes are increased, but business has guarantee of effective judicial system and right property in the established practice in applying the law, many businessmen will favour an idea. I will be first. Don`t forget, that in the countries of West a tax pressure and quality of business protection are higher, than in our country.
Will increasing personal income tax be effective? How many people will agree to receive tax rebate from charge on the individual pension accounts?
I think this order is the false of population, especially in the situation, where pension contributions are frozen with strange perspective. It`s difficult to lay account that the government takes money now and will pay it after 10-20 years. It`s not privilege, it`s additional tax. Part of such tax will be received to Pension fund. Now such additional tax will be paid by citizens.
Can citizens themselves pay personal income tax completely?
I think according our mentality and system of tax administration it`s unreal. Such decision can lead to increasing outlay of administration personal income tax. So unless and until population understands that tax should be paid completely, the most effective way is taking tax by tax agencies.
What's the likelihood that discussion about tax measures deadlock taking into account government`s opponents of cutting insurance fees?
I agree that once the Central Bank may be concerned that tax increases drive inflation. But at the same time, it should be taken into account that the government is interested in the fact that the ruble does not strengthen much, and the official inflation is even lower than the Central Bank planned. If this course can be kept in 2018, inflation will not be the dominant factor in raising taxes, and the proposal to raise VAT will pass, because, I repeat, this is the least evil for all. As for the increase in personal income tax, the proposal is more controversial, since it directly affects the population: even an increase of 2 per cent will be a serious unpopular political measure. Therefore, I think that an increase in personal income tax will occur as last resource, or some hidden measures will be taken - for example, the abolition of any benefits on personal income tax, as recently it was done on property deductions. Although, in my opinion, it would be most correct to establish a progressive scale of personal income tax, since its rate does not correspond to the idea of social justice.
How can we get over opposition of Ministry Finance Prime Minister, which were against progressive personal income tax?
It all depends on what kind of progression, and other details. If, for example, free income is set at 200,000 rubles per year, then for the poorest segments of the population it will be a good support, and it will be a popular decision for the greater part of the electorate. But at the same time progression will complicate administration of the tax. Moreover, almost all additional incomes from the progress of the progressive scale will go to Moscow, the Moscow region and St. Petersburg, where mostly well-off citizens of our country live.
There is another way: to leave a rate, but to remove those benefits from personal income tax, which actually establish the regressivity of taxation. For example, to remove the privilege when you receive interest on savings above a certain level, when you sell the second and the next real estate object for a year that is owned by more than five years, and so on. You can also increase different “taxes on luxury” - all over the world owning expensive property is rather burdensome. In addition, it`s all easily administered: property cannot be hidden, transport is registered, interest on saving is paid by banks (tax agents) and so on.
For more information click here.
