Russia Creates Unified Social Insurance Tax And Benefit System

by Tatiana Smolenska, Tax-News.com, Moscow

26 October 2001

Continuing the modernisation of the structure of state financial institutions, the Russian administration presented the Duma yesterday with a draft federal law to reform the Pension Fund of the Russian Federation, which the Duma passed at its first reading by 235 votes to 162.

The reform of the Pension Fund, which functions at present as a quasi-bank, goes hand in hand with the reorganisation of social taxation. Whereas previously a range of individual taxes were levied covering different aspects of social provision, there is now just one contribution for social welfare, as in most Western countries.

Under the proposed law, a newly-created social insurance institution will take on functions which are currently scattered around different parts of the government, including record-keeping, the payment of pensions and related benefits, and the adoption of a funded insurance model as opposed to the old 'pay-as-you-go' approach.

"This is a state-run institution of the Russian Federation," Mikhail Zurabov, chairman of the Pension Fund Board, emphasized when presenting the bill to the MPs. According to the bill, the organizational structure of the Pension Fund will consist of a board to exercise direction of the state-run institution and an executive board to conduct the fund's day-to-day activities. The bill provides for an annual audit of the Pension Fund. According to data given by Zurabov, the Pension Fund now employs more than 80,000 people.

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