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Russian Lawmakers Reject Bill To Unflatten Income Tax

by Tatiana Smolenskaya, Tax-News.com, Moscow

13 April 2007


The Russian State Duma, the lower house of parliament, has voted to reject two amendments to the Russian tax code that would replace Russia's flat rate of tax on personal income with a progressive system whereby those who earn more pay more tax.

The amendments concerned article 224 of the tax code, which stipulates that Russian tax residents pay income tax at a rate of 13% regardless of their income, and were introduced by the nationalist Rodina party, who argue that the current tax system disproportionately hits the poorest taxpayers.

One of the amendments proposed no tax on individual incomes up to 60,000 rubles per year, a 10% tax on incomes from 60,000 to 120,000 rubles, a 13% tax on incomes from 120,000 to 1.2 million rubles, a 20% tax on income from 1.2 million to 3.6 million rubles and a 30% tax on income over 3.6 million rubles.

The bill was opposed by both Deputy Prime Minister Alexander Zhukov and the speaker of the State Duma, Boris Gryzlov.

President Vladimir Putin signed the 13% flat tax into law in 2000 which at the time formed the centrepiece of his market reform strategy. The flat tax replaced the former progressive tax rate which ranged from 12% to 30%.

One of the main objectives of the flat tax was the desire to reduce tax evasion by encouraging more people to declare their true incomes. It was also hoped that the flat tax would stem the tide of capital flight from Russia, although this has only recently begun to reverse. The government has also recently legislated an income tax amnesty in a bid to tempt Russians to bring home and invest some of the billions of dollars stashed in secret foreign bank accounts.


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