Alexei Vedev on the progressive tax scale prospects in Russia

In his address to the Federal Assembly, RF President Vladimir Putin called for “developing approaches to the modernization of the fiscal system and more equitable distribution of the burden of taxation towards those who have higher personal and corporate incomes.” It is about introducing differentiated tax rates and modernizing the fiscal system in Russia.

“The efforts to modernize the Russian fiscal system have been constantly made since 2009,” Alexei Vedev reminds. “For instance, in 2015 the Center for Strategic Research led by Alexei Kudrin prepared large-scale proposals for the government. Those proposals included a number of tax innovations, some of which (an increase in VAT) were eventually implemented, while others (a decrease in the profit tax) were not. Apart from that, it was decided at that time to give up the idea of switching over to a progressive scale of the personal income tax. The flat scale has a lot of advantages: it promotes primarily growth in domestic demand and creation of new jobs in budget sectors, healthcare and education,” Alexei Vedev notes.

Overall, experts believe that the fiscal system needs further modernization because there are risks of a growing budget deficit and it is important to optimize budget revenues. The higher the turnover and profit, the higher the rate of taxation. But how they are going to implement it in practice in respect of the corporate sector it is not yet known. Actually, the progressive tax scale can already be found to some extent in the Russian fiscal system: in 2021 the tax was increased by 2% (to 15%) for individuals with income of over Rb5 mn a year. But much work is still ahead.