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IMF Urges Russian Payroll Tax Cut

by Tatiana Smolenskaya,, Moscow

20 June 2011

The International Monetary Fund has urged the Russian government to put in place a "credible, ambitious, and growth-friendly" fiscal consolidation plan which includes a reversal of the recent payroll tax hike.

The IMF says that the current budget for 2011 to 2013 would leave the non-oil deficit at 10.5% of gross domestic product, and therefore a larger and faster fiscal adjustment is needed to reduce the country's fiscal vulnerabilities.

The Fund called for "concrete plans, grounded in growth-friendly measures, including a reversal of the payroll tax increase, reductions in subsidies and tax exemptions, and better targeting of social transfers" to be laid out to reach the authorities’ long-term non-oil deficit target of 4.7% by 2015.

There has been speculation that the Russian government has agreed on the need for a cut in payroll tax, but that it is undecided on the extent of the cut, to whom the cut should apply, or when it will take place.

The rate was increased from 26% to 34% on January 1, and the move has been criticized as fostering the growth of the black economy, as employers pay staff off the books in cash rather than suffer the payroll tax.

In addition, the IMF has welcomed the planned accounting of tax exemptions, which it believes would help prioritizing the use of budget resources and increase transparency.

The Fund also urges Russia to create an independent fiscal agency, to conduct impartial and transparent fiscal analysis and assess the implementation of fiscal policy.

TAGS: Russia | tax | economics | business | fiscal policy | International Monetary Fund (IMF) | payroll | tax rates | social security | tax reform

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