Russia Marks New Year With Single Tax Rate For All

Tatiana Smolensky, Tax-news.com, Moscow

03 January 2001

Russia's most significant tax reforms for a decade came into force on New Year's Day, bringing income tax down to a flat rate of 13 per cent and putting Russians among the world's least taxed people.

The single income tax rate had been on the cards for some time, the Russian parliament having voted overwhelmingly to adopt it back in July 2000. Its aim is to simplify tax procedures and reduce personal income tax in a bid to increase pitiful tax revenues, which are low due to large-scale tax evasion.

The flat rate replaces a graduated system in which tax rose last year from a basic rate of 12 per cent to a top marginal rate of 30 per cent. The new system means slightly higher income tax bills for poorer Russian workers, who previously paid only the basic rate of 12 per cent. But this rise should be offset by a reduction in other payroll charges.

The legislation also simplifies Russia's obsolete social service payments system and abolishes a five per cent business turnover tax.

President Putin said last year when signing the decree making the measures law: 'It's an important event in the life of the country.' Certainly, the tax changes are the most important since Russia's fiscal code was created in the early 1990s.

In addition to the standard tax rate, the Russian authorities are also said to be considering ways of making tax collection more effective. The head of the Russian tax police, Vyacheslav Soltaganov, has been arguing for the creation of a new government intelligence service dedicated solely to curtailing tax evasion and capital flight.

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