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Jul 1, 2020
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Taxes in Russia: not to zero, but to increase

Five million process

When President Vladimir Putin announced a progressive taxation scale, many immediately called the changes too modest. The rate itself was embarrassed at 15 percent (only two percentage points more than everyone else), and the amount of income, starting from which this rate will work. The latter is especially important for critics, since it turns out that the proposed measure will affect no more than 3-4 percent of workers.

The mere fact of the introduction of a 15% personal income tax rate for citizens with annual incomes of more than 5 million rubles can be seen as a kind of signal to business. Get out of the shadows: nothing really threatens anyone.

What can the legalization of the income of management and highly qualified personnel come right after the notorious “top” for whom a salary of 10 million a year is the norm? In fact, with proper tax administration and the final abandonment of offshore practice, a lot.

However, the latter is hard to believe, especially since the business empires of the oligarchs and those close to them are literally plastered with hundreds and thousands of offshore firms and firms, many of which are also classic one-day ones. Attempts to eradicate the practice of remuneration through such structures have been made in Russia more than once, but they have somehow failed.

However, soft incentive measures, such as financial or tax amnesty, almost did not work. Specialists have already lost count of how many there were in Russia. In recent years, one amnesty usually flowed smoothly into the next, but this did not contribute much to the inflow of capital to Russia.

On the other hand, when foreign sanctions directly touched the Russian financial sector, many were in a hurry to translate everything that was “acquired by back-breaking labor” closer to home. However, the alarm turned out to be false in the end, the shadow and gray economy even adapted to sanctions much faster than the real and completely legal economy.

The process of capital outflow from Russia stopped only for a while, although today, because of the regime of self-isolation, something like a pause also happened. One must think that the “zeroing” of the tourist flow abroad, almost complete, with the exception of yourself you know who, also slightly corrects the indicators of capital flows “to Russia - from Russia”.

Test ball

The fact that the authorities decided to make a cut-off of 5 million rubles for the so-called CFCs (companies with foreign capital) is not criticized or commented on. Most likely, because this is a mystery that has yet to be guessed in practice.

But the good thing is that for many, at least dealing with taxes has become much easier. After all, if until now the owners of the CFC to pay a 20 percent tax had to somehow calculate retained earnings, then now, as they say, pay and sleep peacefully.

For hundreds of companies a “fixed fee” is introduced, and not the biggest one, for the very fact of ownership of a foreign company by Russian residents. How everything will come to life, most likely, will depend on the initiative and decency, or rather, the degree of corruption of local tax authorities.

At the same time, criticizing the authorities for a new rate for the rich at 15 percent - this, it turns out, is easiest, the difference is really minimal. However, the annual salary of 5 million rubles a year, of course, annoys the lion's share of the population. Nevertheless, if you risk introducing a truly progressive taxation scale, for example, with steps of 20, 25, and 35 percent, we are almost guaranteed to get the opposite result.

That is, the zeroing of revenues from the treasury from the rich, but not so much, salaries and bonuses in envelopes, hidden dividends and the mass withdrawal of business abroad. However, something like a “trial ball” has been launched. And it must inevitably be followed by other initiatives regarding progressive taxation of income.

Specialists from the Ministry of Finance have already calculated approximately 60 billion additional revenue to the budget thanks to a new increased rate. This is about 0.25 percent of all budget revenues planned before the pandemic and quarantine.

It would seem that quite a bit, but in the current difficult time, not only every percent, every billion rubles is on the account. Recall that for a very decent increase in child benefits, it took a little more than a billion. It is clear that the extra two percent of thousands of “five million people” are able to untie the hands of the executive branch precisely to solve the most pressing social problems.

Critics will surely say that two percentage points will not remove the tension in society associated with inequality and unfair taxation. Perhaps this is true, but it is necessary to start somewhere. Now, if there is no continuation, another thing.

Transparent and unambiguous

If the executive branch continues to do what the current prime minister in the tax sphere has been doing for many years, that is, he has pursued a course towards transparency and unambiguity of the system itself, we can expect a result. However, for many years Russia has had a positive situation with taxes and fees: the budget has been balanced for many years just to the envy of enemies. But how much citizens have been getting over and over now is a completely different question.

At the moment, the given trend is very important, especially since the same “control” amount of 5 million rubles appears in another tax innovation. The president proposed introducing a flat tax rate for foreign companies controlled by Russian business, starting from just that amount. In fact, we are talking about transferring the entire small and medium-sized business with foreign participation to a fixed tax rate.

It is not yet clear why such a measure affected only foreigners, but one should not think that the Russian authorities decided to simply search where it is lighter. Undoubtedly, the reporting of companies registered abroad is generally more transparent, but in the end, most likely, we should expect that the practice of fixed taxation will be extended to Russian companies. For foreigners, it seems, they just simply break in the appropriate technology.

It is possible that the pandemic factor also worked, with which various kinds of tax breaks are connected up to the holidays, and why the authorities are in no hurry with fixed rates. There is a feeling that the parallel implementation of measures with the notorious five million is a kind of recognition by the authorities of the fact that the rejection of offshore companies did not take place. However, how could it be otherwise if the “chosen ones” are sitting almost exclusively in offshore?

But offshore is not all. In fact, it is recognized that it did not work either with an amnesty or with a turn of capital into the country. Although why do Russia need “extra” capital, even if it’s difficult to find a specialist in the federal departments who really believes that they will not be plundered and cut?

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