Official: Fin Min sees payroll tax boost as VAT growth alternative

MOSCOW, Mar 15 (PRIME) – Russia will soon be unable to afford the current payroll tax rate of 30% and an alternative to a Finance Ministry proposal to raise value-added-tax (VAT), is a higher payroll tax, Deputy Finance Minister Vladimir Kolychev told reporters on Wednesday.

Minister Anton Siluanov said on Monday that the Finance Ministry wants to introduce a flat 22% rate for the payroll tax and VAT, now at 18%.

“The share of formal employment in the structure of the Russian economy, which we have seen over the last seven–eight years, decreased by about 0.7% annually. If we assume that it will decrease further at this rate, it will lead to significant income losses for the budget system,” Kolychev said.

The high rate of the payroll tax makes legal employment uncompetitive. “The key goal is to break this vicious circle,” he said.

Kolychev said that the Pension Fund will lose about 1.4 trillion rubles a year when the payroll tax is reduced but the VAT increase is expected to bring additional 1.2 trillion rubles to the budget. The government will spend less on the payroll tax of state employees, which is why the move is expected to be neutral for the budget system.

(58.9540 rubles – U.S. $1)

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