Challenges facing Russia’s tax system
15 February 2018
A discussion entitled ‘Russia’s Taxation System: Meeting the Challenges’ was a key business programme event on the first day of the Russian Investment Forum. Speakers focused on new regional policies and ways to improve administration. Participants subscribed to the view that there would be no increase in taxes, that no new taxes were planned, and that any decisions made by the authorities must be transparent and easy for business to understand.
Andrey Makarov, Chairman of the State Duma Committee on Budget and Taxes, moderated the discussion. He said that the most important thing businesses wanted was taxation stability. “In 2017 alone, 37 bills on amendments to the Tax Code were introduced; the tax base and the key elements of the tax system are in flux. Unfortunately, entrepreneurs cannot always benefit from the positive changes because they are unable to track them all”, Andrey Makarov said.
Russia’s Minister for Economic Development Maxim Oreshkin agreed with the moderator: “Predictability is very important”. Yet the Minister emphasized a different topic, non-tax payments, adding that stability of tax rates had already been achieved: “Key tax rates have been stable for the past six years. The promises made in 2012 of the tax system remaining unchanged have been kept”.
Vladimir Mau, Rector of the Russian Presidential Academy of National Economy and Public Administration, weighed in on the topic of tax administration stability: “Improvements to the tax system are less exciting than its stability. We would be lucky to live for five consecutive years in a tax system that did not need any improvements”. According to Alexey Repik, President of the All-Russia Public Organization Delovaya Rossiya, a compromise between the government and business needs to be found. Chairwoman of the Accounts Chamber of Russia Tatyana Golikova said the tax burden would not be increased only if non-tax levies were converted into tax payments.
Igor Lotakov, PwC Russia Managing Partner, spoke about how digitization would affect the tax administration: “On the one hand, digitization has enabled us to reduce the tax burden and, on the other, it has ensured transparency, as taxes cease to be the private matter of businesses”.
Mikhail Orlov, Head of KPMG Russia and CIS Tax and Legal Advisory Department, pointed to some key issues that concern business. “It is important to guarantee stability and predictability of tax administration for businesses, introduce reasonable tax controls, set clear rules of the game and reduce the tax burden”, Mikhail Orlov said. He enumerated the key proposals by business to the government.
Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs (RSPP), also listed issues that concern entrepreneurs. According to RSPP studies, 28% of businesspeople are concerned about the insufficient predictability of the fiscal system.
The discussion touched upon the high level of ‘shadow’ employment in the economy. Perm Territory Governor Maxim Reshetnikov said he was convinced that, to legalize businesses, tax levies should be first legalized. He cited successful examples of introducing levies for migrants’ work patents, as well as retail and resort levies, all of which have had a positive economic effect while keeping rates low. Minister for Economic Development Maxim Oreshkin added that the retail levy had already proven its effectiveness, as many companies had ‘left the shadows’ and could benefit from being able to compete.
Maxim Reshetnikov noted the importance of expanding the regions’ taxation powers and giving them a chance to compete for investments. Ryazan Region Governor Nikolay Lubimov also spoke about the regions’ rights in the area of tax administration.
Answering what rights the regions should have and whether it was reasonable to expand their powers, Finance Minister Anton Siluanov said: “Without a doubt, there should be tax federalism, but that does not mean letting tax levies get out of control. The list of levies must be finite, as is that of taxes. Russia’s regions may decide for themselves whether or not to apply those levies but the list itself must be close-ended”.
Tatyana Golikova commented further on the subject of regional governance: “Clearly we should be shifting the weight towards the constituent regions of the Russian Federation while trying not to destroy our single economic space. Giving too much leeway to the regions might adversely affect our integrity”.
In his closing remarks, the moderator stated that Russia’s tax system was not competitive and could not ensure the fulfilment of the President’s instructions to achieve economic growth rates above the global average.
Andrey Makarov, Chairman of the State Duma Committee on Budget and Taxes, moderated the discussion. He said that the most important thing businesses wanted was taxation stability. “In 2017 alone, 37 bills on amendments to the Tax Code were introduced; the tax base and the key elements of the tax system are in flux. Unfortunately, entrepreneurs cannot always benefit from the positive changes because they are unable to track them all”, Andrey Makarov said.
Russia’s Minister for Economic Development Maxim Oreshkin agreed with the moderator: “Predictability is very important”. Yet the Minister emphasized a different topic, non-tax payments, adding that stability of tax rates had already been achieved: “Key tax rates have been stable for the past six years. The promises made in 2012 of the tax system remaining unchanged have been kept”.
Vladimir Mau, Rector of the Russian Presidential Academy of National Economy and Public Administration, weighed in on the topic of tax administration stability: “Improvements to the tax system are less exciting than its stability. We would be lucky to live for five consecutive years in a tax system that did not need any improvements”. According to Alexey Repik, President of the All-Russia Public Organization Delovaya Rossiya, a compromise between the government and business needs to be found. Chairwoman of the Accounts Chamber of Russia Tatyana Golikova said the tax burden would not be increased only if non-tax levies were converted into tax payments.
Igor Lotakov, PwC Russia Managing Partner, spoke about how digitization would affect the tax administration: “On the one hand, digitization has enabled us to reduce the tax burden and, on the other, it has ensured transparency, as taxes cease to be the private matter of businesses”.
Mikhail Orlov, Head of KPMG Russia and CIS Tax and Legal Advisory Department, pointed to some key issues that concern business. “It is important to guarantee stability and predictability of tax administration for businesses, introduce reasonable tax controls, set clear rules of the game and reduce the tax burden”, Mikhail Orlov said. He enumerated the key proposals by business to the government.
Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs (RSPP), also listed issues that concern entrepreneurs. According to RSPP studies, 28% of businesspeople are concerned about the insufficient predictability of the fiscal system.
The discussion touched upon the high level of ‘shadow’ employment in the economy. Perm Territory Governor Maxim Reshetnikov said he was convinced that, to legalize businesses, tax levies should be first legalized. He cited successful examples of introducing levies for migrants’ work patents, as well as retail and resort levies, all of which have had a positive economic effect while keeping rates low. Minister for Economic Development Maxim Oreshkin added that the retail levy had already proven its effectiveness, as many companies had ‘left the shadows’ and could benefit from being able to compete.
Maxim Reshetnikov noted the importance of expanding the regions’ taxation powers and giving them a chance to compete for investments. Ryazan Region Governor Nikolay Lubimov also spoke about the regions’ rights in the area of tax administration.
Answering what rights the regions should have and whether it was reasonable to expand their powers, Finance Minister Anton Siluanov said: “Without a doubt, there should be tax federalism, but that does not mean letting tax levies get out of control. The list of levies must be finite, as is that of taxes. Russia’s regions may decide for themselves whether or not to apply those levies but the list itself must be close-ended”.
Tatyana Golikova commented further on the subject of regional governance: “Clearly we should be shifting the weight towards the constituent regions of the Russian Federation while trying not to destroy our single economic space. Giving too much leeway to the regions might adversely affect our integrity”.
In his closing remarks, the moderator stated that Russia’s tax system was not competitive and could not ensure the fulfilment of the President’s instructions to achieve economic growth rates above the global average.
