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More Russians Paying Income Taxes

by Tatiana Smolensky, Tax-News.com, Moscow

16 April 2002

The Russian government revealed recently that the 13% flat tax rate imposed last year on individual taxpayers has been a resounding success, with personal income tax revenue up nearly 47% in 2001.

The move by President Vladimir Putin to draw more taxpayers out of the country's 'shadow ecomony' saw overall revenue collection increase by around 50%, and early figures for 2002 are even more encouraging according to government sources. 'We expect the number of people filling out income tax forms to increase substantially,' Dmitri Mikulich, deputy head of the Russian Tax Ministry's Individual Income Tax Department, predicted.

However, businesses in Russia are still overburdened with taxes, and a similar revolution in taxpaying habits seems unlikely without major tax reform. Currently, Russian businesses are obliged to pay a social tax on salaries of up to 35.6%, a 5% sales tax, 20% VAT, a 5% advertising tax, a 2% property tax, and a 24% tax on net profits, to name but a few.

This has resulted in a situation whereby business owners operate dual book-keeping systems, paying their employees with cash, and recording lower figures in their books for the benefit of tax inspectors.

Speaking to the UK Guardian on Sunday, a Moscow travel agent expressed the prevailing sentiment in the small and medium enterprise sector:

'If the government makes it a 13% tax for business, just like for individuals, then I'm ready to pay it, but right now there's no way,' he told the newspaper, adding that: 'You'd have to turn over all your profits.'

There appears to be hope on the horizon for the country's SMEs, however. Earlier this year, President Putin announced plans for a reform of business taxation which will give companies the option to pay a 20% profit tax or an 8% tax on revenues.

Speaking in March, Putin promised that the effect on revenue collection would be 'no less revolutionary' than that of the flat rate personal income tax.

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