Official: Progressive tax scale in Russia to boost tax evasion

MOSCOW, Aug 29 (PRIME) – Russia’s possible replacement of a flat 13% income tax with a progressive scale will backfire in a proactive tax evasion, Andrei Makarov, chairman of the budget and tax committee of the State Duma, the parliament’s lower chamber, told PRIME in an interview published on Monday.

“Transition to a unified rate led to a massive legalization of income. And with an increase in the income tax a reverse process may start: wealthy people will wish to evade taxes more proactively, budget revenue will decline, while the main tax burden will fall on the middle class,” Makarov said.

The official said that tax evasion is impossible in state-controlled organizations “but there is a large number of businesses unconnected to the government.”

The Wall Street Journal reported in May that the Russian government is considering setting a progressive income tax rate after the presidential elections in 2018. An increase of the tax to 20%, while keeping it unified is also being considered, sources cited by the newspaper said.

Makarov said that a progressive tax scale will scare off investors and highly qualified foreign employees and will require more budget spending to control tax payments.

“The introduction of a progressive scale will require an almost 100% coverage of the economically active population with a duty to report income themselves, taking into account income from various sources, to sum them, to apply deductions or incentives, to fill in tax reports and to explain things to tax inspectors as no tax agent can know whether you have a part-time extra job, an extra income. This will affect tens of million people,” Makarov said.

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