UPDATE 3: Russian Fin Min wants to raise VAT, cut payroll tax to 22%

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MOSCOW, Mar 13 (PRIME) -- The Russian Finance Ministry offers to set the rates of both the payroll tax, now at 30%, and value-added (VAT) tax, now at 18%, at 22%, Minister Anton Siluanov said at a forum on Monday.

“We see it possible to reduce the combined rate of the payroll tax and to shift the tax burden to indirect taxes. According to our estimates, in order for this to be neutral for the budget, the rates must be set at 22% and be compensated with a 22% rate of the VAT tax,” Siluanov said.

The ministry sees no need in raising the tax burden if budget spending does not grow.

“We have decided clearly in this respect that there is no need to raise the tax burden if we do not increase our spending obligations. In general, we see stabilization of spending obligations, a lower budget misbalance. And with the level of spending we have in 2019, we think that it is quite enough to fulfill all obligations of the government by working with this volume of obligations,” Siluanov said.

The ministry offers to retain all existing economy sector-related VAT incentives –– for agriculture, healthcare, education and the financial sector –– after the tax changes.

“The only industries for whom it will bring a negative result or an additional burden, are the industries working in the shadow,” Siluanov said.

Investment-related income tax incentives applied for special economic zones and territories of accelerated development can be spread across Russia at large. In exchange, all other income tax incentives can be revoked, he said, adding that no final decision has been made.

He said that many Russian taxpayers prefer to reject their residency not to declare capital, and the Finance Ministry is ready to improve legislation targeted at return of assets from offshore jurisdictions.

The tax system change can add 2 percentage points or a little more to inflation but that would be a one-time impact, Siluanov said.

He also said that budget revenue from taxes on the energy sector will decrease by one percentage point by 2025, and Russia will compensate the lost income by changing the tax structure and improving administration.

The export duty on oil can be fully repealed in 2022–2025. The government is discussing shifting the tax burden to domestic taxes, Siluanov said.

Labor and Social Protection Minister Maxim Topilin said that a cut of the payroll rate to 22% from 30% will result in higher federal budget subventions to the Pension Fund.

Topilin said that the government reduced the payroll tax to 20% from 28% in 2005–2006 to stimulate employers’ participation in the open economy. “Now we think that it (the share of employers in the shadow economy) has not decreased, it even grew. So there are those who are in the shadows or pay ghost salaries, they do not pay anything (to state funds). This is why I think this will result in more transfers to the Pension Fund.”

The minister said that the Finance Ministry has not shown its calculations to the Labor Ministry yet.

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