Duma Votes For Larger Than Expected Payroll Tax Cut

by Tatiana Smolenska, Tax-News.com, Moscow

10 June 2003

Lawmakers in the Russian State Duma last week voted to cut payroll tax by 270 billion roubles ($8.8 billion) as the government's tax proposals take a step closer to fruition.

The tax cut is actually larger than that originally presented by the Finance Ministry for the 2005 budget, which provisioned for a 240 billion rouble reduction. It will mean the unified social tax paid by employers on wages under 50,000 roubles per year will fall to 30% from 35.6%. On salaries from 50,000 roubles to 600,000 roubles, the rate will be 15%, and above 600,000, will fall to 5%. The initial plan had called for a flat rate of 26% on all levels of income.

The government's programme of tax cuts scheduled for the next three years includes a reduction in VAT from 20% to 18% with a view to a further reduction to 16% possibly taking place in 2006. A temporary 5% sales tax imposed in 1999 to stave off bankruptcy is also due to expire at the end of this year, though there is some debate as to whether this will be abolished.

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