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“Reducing taxes is a doping for the economy.” What’s wrong with the tax system of Russia.

«Снижение налогов — это допинг для экономики». Что не так с налоговой системой России.

“Reducing taxes is doping the economy”

What’s wrong with the tax system of Russia, and how you can change it.

November 21, employees of tax bodies celebrate their professional holiday. According to head FNS of Michael mishustina, from 2015 to 2019, tax revenues in real terms grew 1.4 times (plus 38.8 per cent). This year, the growth in tax revenues continues for ten months in 2019 amounted to a plus of 7.9%. Meanwhile, experts have called a large number of weaknesses in the tax policy of the state. In an interview with Znak.com said the expert on fiscal policy, associate Professor of Economics and Finance, faculty of economic and social Sciences of the Russian Academy of national economy, candidate of economic Sciences Alisen Alonenow.

“You can’t kill the goose that lays the Golden eggs. But now our government is and does”

— What are the incidents of Russian tax policy?

— Serious problem of modern tax policy is the lack of stable legislative framework. The tax code is prone to make frequent amendments and adjustments, which negatively affects the investment climate and the reluctance of taxpayers to comply with tax laws. You should also pay attention to the lack of concrete legal norms of the Tax code that fosters bureaucracy and overly complex for the taxpayer approach to the calculation and payment of taxes.

 

There is a steady dominance of fiscal objectives of taxation over regulating, thereby further reducing the incentives for entrepreneurship.

In addition, every year an increasing tax burden on the real sector of the economy. And to a greater extent increases the quasi-fiscal tax burden. This makes for unpredictable business environment and deter investors. The economy has indicators such as the Laffer curve. It still has not been canceled. It demonstrates the dependence of the growth in budget revenues from rising tax rates. According to this curve the growth rate up to a certain point, the inflow of revenue in the budget. But after a certain level of income start to fall. This suggests that excessive tax pressure leads the business in the shadows.

The Ministry of Finance should conduct an inventory of all taxes on the subject of the proportionality of the tax burden to current business conditions. Despite the high tax burden on the real sector of the economy, some large companies use various methods of tax evasion.

According to various estimates, from 75% to 80% of large businesses owned by foreign residents, which is veiled through nominees.

Hence the depreciation of fixed assets more than 80%, and tax avoidance in the offshore zone. There is a tendency priority development of the mining sphere, the sphere of circulation and services, as well as the financial sector, in relation to the material production sectors. The lack of stimulation of the real sector of the economy against the background of favourable market conditions prevailing for the energy exporting support raw type of economy hampers innovative development, contributes to loss of competitive advantage in foreign markets.

«Снижение налогов — это допинг для экономики». Что не так с налоговой системой России.Nikolay Gyngazov / Global Look Press

That is, in a word, the main incident is that the tax potential to stimulate the economy in our country is implemented very poorly. This excessive tax burden on individuals and organizations of small and medium business together with tough fiscal centralization with the dominance of fiscal interests of the state creates a situation in which a substantial part of tax revenue is “leaked” into the underground economy. As a way out of this situation, it is necessary to maintain such a level of tax burden, which, on the one hand, not be an obstacle to sustainable economic growth, and on the other meets the needs of budget revenues to provide essential public services.

— Russia almost a year had increased the VAT rate from 18% to 20%, the law came into force on 1 January 2019. The VAT increase in Russia brought additional revenues to the budget 650 billion rubles, which is comparable to 0.6% of GDP. In your opinion, how it was necessary to increase VAT, taking into account the budget surplus?

— Originally they were going to collect 620 billion, but collected even more. The VAT increase of 2% in current conditions extremely disadvantageous for business development. Of course, on the one hand, with the VAT increase was followed by measures to support domestic enterprises, so that they could compete with Western companies in the country. But on the other, increasing interest rates inevitably led to rising prices and reduced real incomes. This means that was dealt another blow to the investment potential of private business. Investor should understand that the products and goods will be paid by the end user. But if the income of consumers falls, it was necessary to reconsider the investment program. The demand provokes the supply falls.

Action is therefore needed to support private business, to enable it to cover its losses from the VAT increase.

Oddly enough, but the experience of several countries shows that the growth of VAT can be achieved, including by reducing tax rates. However, the growth of tax revenues is provided with some time lag. In this case, a tax increase is achieved through expansion of tax base, even with a relatively lower tax rate. Conversely, the increase in VAT rates in the short term ensures that the growth of receipts in the budget but in the long term, tax revenues will fall due to the effect of narrowing the tax base. This is due to the fact that high tax rates inhibit entrepreneurial initiative, and also affect the loss of business and investment activity.

— It was recently reported, citing the Ministry of economic development in Russia for last year has closed 668 thousand legal persons. In your opinion, a lot or a little for our economy, it is a natural process or is it including the tax policy of the state?

— Of course, it’s a lot. It should be noted that such negative trend we are seeing in 2016. In 2018 one business had two closed. I’m sure it’s a consequence of the increased tax burden. Although the us government has promised that taxes will not be increased for six years. But let’s see what happened in fact: increase of the mineral tax until 2021 in connection with the implementation of the tax maneuver, the indexation of excise taxes and taxes on small business.

«Снижение налогов — это допинг для экономики». Что не так с налоговой системой России.Jaromir Novels / Znak.com

Taxes on small business are indexed by increasing correction factors. Such factors next year will be put on imputed income, patent system of taxation and personal income tax. And indexation next year will be higher than the inflation rate of almost 5%. If this is done from year to year, the tax burden grows each year.

Further, there is an increase in quasi-fiscal tax burden by increasing the rates on a number of non-tax payments. Most non-tax revenue has emerged over the last 7-8 years. This, for example, an environmental tax, the fee for negative impact on the environment (NVOS), the utilization fee, resort fee, mandatory contributions of the Telecom operators, the fare of heavy vehicles, fees for issuing the codes on the marked goods and so on. All this is also able to accelerate inflation and increase the tax burden of enterprises. Save the current trend in the increase in the tax and quasianalogue load will contribute to further stagnation and recession of economy.

I want to mention another negative trend. We are witnessing the closure of enterprises against the background of increasing tax revenues. It says the following. On the one hand there is improvement in methods of tax administration. On the other hand, the increasing pressure on the business that operates in white. And this is one of the main reasons that enterprises show a year on year negative trend. In the end, this can lead to the fact that we will cease to record a growth of income tax revenues. And the number of enterprises will be smaller, and taxes. There is a saying: do not kill the goose that lays the Golden eggs. But our government now does so.

“Keeping the flat rate will increase further the gap between rich and poor”

— From the beginning of next year in 19 regions will operate a special tax regime for self-employed. There are two points of view about this regime. On the one hand, citizens will not have to register SP and pay 13% income tax. But on the other hand, the self-employed are people who are not a burden on the state, they are not registered in the employment center do not receive benefits, did not rally because of unemployment and so on. Whether they’re inconvenienced by this tax? Is the game worth the candle: the state will receive is clearly not the largest amount, but instead will receive the next unhappy.

— Yes, in 2019, this tax was introduced in four regions, prosperous from the economic point of view. Decided to extend it to other regions that have some of the highest economic indicators. This donor regions and those regions where there are cities. From July 1 next year the tax will be distributed throughout the Russian Federation. Emphasize that the experiment was successful, for today have registered over 280 thousand self-employed. This is above the expected level, was planned for this year 200 thousand

On the one hand, the tax benefit self-employed. Official activities gives them the opportunity to expand its client base, without fear of consequences from the tax authorities. This gives you the opportunity to receive assistance from the Federal budget, in particular, preferential loans. But on the other hand, we see now the problems with the implementation of this tax. Not all categories of self-employed came out of the shadows. The most popular this tax is a hit among taxi drivers, specialists of IT-technologies, web-designers, computer artists, Tutors, and other categories. But other categories of self-employed, this tax regime was unclaimed. This applies to those who provide any services: manicures, work hairdressers, repair shoes, bakes cakes and so on. They fear that if you come out of the shadows, then they will increase the volume of claims and, accordingly, they will increase the cost of that will simply give way to them. It is necessary to note that 65% of registered self-employed is in Moscow. In other regions they have a small part. Let’s see how it goes throughout the rest of the country.

Why not everywhere, this tax regime was in demand? I think including non-uniformity of the tax burden. For example, a tutor spends almost nothing to produce income. But there are self-employed that produce any products to have higher costs. And they can reach 70-80% of total revenues. In such conditions 4-6% tax — this is a significant sum. Exit data the categories of self-employed from the shadows remains in question. In this matter the state ought to provide for such self employed any deductions. Such deductions, for example, exist in personal income tax.

— In your opinion, how many of our tax is paid by corporations engaged in the extraction of mineral resources? In particular, the chief Executive Director of “Rosneft” Igor Sechin in April of this year at a meeting with President Vladimir Putin called his company a “taxpayer number one” in Russia. And he from time to time asks for tax benefits for their company. How fair to ask for tax breaks in the current situation?

— In the mining industry, which creates a low added value, should be the highest tax burden. And in the sphere of processing and high-tech industries, the tax burden should be lower. It is in these industries creates a great added value, and it gives more taxes. Therefore one of the objectives of tax policy should be to revise the tax mechanism in favor of higher taxes in the extractive industries.

«Снижение налогов — это допинг для экономики». Что не так с налоговой системой России.Igor Cetintas / SPIEF’ 18

As for the statements Sechin. The provision of individual tax benefits are prohibited by the tax code, there is a corresponding article. Tax credit for taxes and levies cannot be granted to one particular organization or one individual. Benefits are provided to certain categories of taxpayers. Otherwise one will create the best competitive environment that will enhance uneven development of enterprises of the same industry. But for the normal functioning of the market must be created equal conditions of competition. The effect of such measures on the economy would be extremely negative.

— How do you evaluate the introduction in Russia of progressive income tax, which would reduce the tax burden on the poor citizens of the country. The Minister of economic development of Russia Maxim Oreshkin does not exclude such a scenario, however, believes that everything must be carefully calculated.

Proportional, rather than progressive tax rates violate the principles established by Adam Smith — uniform introduction of taxes among citizens in proportion to their income. The fact that income growth reduces the need for costly, and, consequently, increases the share of discretionary income, i.e. income that is not burdened with the costs. Not difficult to see that proportional tax comprehensive income less wealthy payer bear a heavier tax burden than more wealthy as the proportion of his free income is less, and the proportion of tax paid by this tax free above. Under the current system, wealthy citizens have more income. And low-income citizens all their income to spend on current consumption. Therefore, a gradation of tax, taking into account human needs. Progressive taxation is not about what the rich should pay more, and attempt to somehow reduce the tax burden of poor people. The establishment of a progressive scale would reduce the gap between rich and poor. And the preservation of the flat rate will increase further the gap between rich and poor, which in turn will increase social instability in society. In all economically developed countries have introduced a progressive scale: the higher the income, higher the tax.

“More than half of receipts in budgets of all levels is income from ordinary citizens”

Often the claims to the state apparatus, you can hear the phrase from people: “you exist on my taxes”. How this phrase reflects the reality of what is in the budget the share of taxes from ordinary citizens?

— Besides well-known personal income tax, citizens pay a lot of taxes through consumption of goods and services: VAT, mineral extraction tax, excise duties, customs duties. All indirect taxes in accordance with the law of the transcription of the taxes are passed on to the shoulders of ordinary citizens. Therefore, almost all major taxes come at the expense of ordinary consumers, the VAT provides virtually one-third of all budget revenues. So, it is true to say that more than half of receipts in budgets of all levels is income from ordinary citizens. Only taxes on profit (income) and property companies are direct taxes on businesses. Thus, we see that indirect taxes paid by the population and direct taxes shall be paid out of the income of economic entities. Given that the structure of our taxes, the center of gravity of taxation is shifted towards indirect taxes, and the large sums received from citizens in one form or another, they have, directly or indirectly.

— What you need to do to change our imperfect tax system?

This is a separate topic of conversation. But still I’ll try to answer. The development of the Russian economy under Western sanctions is impossible without innovative development. Sectoral sanctions contribute deterrence of innovation in key sectors of the economy. In this regard, the transition of the Russian economy from export-raw to innovative is the most important. That is, the priority should be the promotion of an innovative economy.

To improve business activity and growth innovation is necessary to both direct and indirect participation of the state.

Direct state support — grants, public-private partnerships and so on. Indirect methods of support are provided through the provision of tax privileges and preferences. Tax incentives should be the main instruments of state regulation. Existing tax incentives not enough to stimulate engagement in innovative activities a large number of economic entities. The presence of a large number of inefficient benefits creates conditions for tax evasion and find ways of avoiding taxes. The benefits should be significant, stable, and profitable, to contribute to the creation of a huge number of innovative structures.

«Снижение налогов — это допинг для экономики». Что не так с налоговой системой России.Jaromir Novels / Znak.com

2017 introduced such a rule, when tax benefits are being cut the regions if they cannot substantiate. This occurs most often with subsidized regions. To justify in practice is extremely difficult. No way out: the region’s failing the companies to provide tax concessions, but it remains subsidized.

Next, you need to review the mechanism of investment tax deduction. This deduction is available to companies in order of investment growth in fixed capital at renewal of production assets. There are various circumstances that prevent the use of this preference. An investment tax deduction is available to companies only if such opportunity will be provided by the law of the Federation. In addition, the regions can limit the maximum size of the deduction from the regional budget, choose the category of equipment to which it applies. But given the difficult financial situation in the regions, not all regions have introduced this benefit. On October 1 of this preferential mechanism is provided only in 11 regions. Moreover, it introduced such strict rules that make it impossible to use this deduction.

Current preferences for VAT, established for enterprises, too, seems to be irrelevant. It should be noted concessionality of the taxation of value added financial transactions. These operations in Russia is exempt from VAT. It turns out that the government encourages the financial sector without any restrictions and conditions. While in the part of the innovation costs required to perform a variety of procedures that restrict their activity to innovation. Therefore, we need some balance between financial services and the real sector.

Doubt is the validity of charging VAT on products, which established excise taxes. In this case, the tax is included and the amount of the excise tax. And this creates the anomaly of double taxation that need to be addressed.

VAT I do suggest either to reduce the rate of VAT, as is done in some countries of the Eurasian Union up to 12%, or in the future to consider replacing VAT with sales tax.

The introduction of a sales tax will solve the problem of a large number of intermediaries, which hampered the access of Russian products to world markets.

In addition, I want to say that the effective interaction between small and big business prevents the mass use of small enterprises of special tax regimes, which are exempt from VAT. Because of this, in practice, large enterprises prefer to purchase from each other. And the introduction of the sales tax will contribute to the solution of this problem. The experience of developed countries shows that there must be either VAT or sales tax. So I would suggest first to go to a substantial reduction in the rate of VAT, and then to replace it with a sales tax. It would have stimulated demand and revived the economy.

Thus, to stimulate economic growth in Russia is necessary to increase the competitiveness of domestic producers by reducing the tax burden and provide various preferences. Tax reduction is doping the economy. The experience of industrialized countries shows that in crisis it is necessary to reduce the tax burden on corporate business. World practice shows that the state has a stable base of development only if it carries out fiscal policy, stimulating the development of innovation.

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