Russian Parliamentarians Approve Payroll Tax Cuts

by Tatiana Smolenskaya, Tax-News.com, Moscow

25 June 2004

The Russian state Duma on Wednesday approved a measure that will bring about reductions in the nation’s social security taxes.

As a result of the changes, businesses will be taxed at a rate of 26% on employee incomes below 280,000 rubles per year (US$9,650) representing a cut for the vast majority of the Russian workforce. For salaries of between 280,000 rubles and 600,000 rubles, firms must pay a marginal rate of 10% whilst incomes above 600,000 rubles will be taxed at 2%.

Under the current social security tax regime, the first 100,000 rubles of income is taxed at 35.6%, whilst wages between 100,000 and 300,000 rubles face a marginal tax of 20%. Anything above this is taxed at 2%.

Welcoming the vote, Duma Speaker Boris Gryzlov told reporters that the move represents “a serious step awaited by entrepreneurs.”

"It will allow them to free up financial resources for wage hikes and take other steps to develop their business," he added.

As of January 2003, the unified social tax was extended to foreign workers, although it is currently being debated in the Constitutional Court whether or not foreigners can claim back money paid into the state pension system.

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