On Wealth Tax
The tax base is determined as the value of the above property on the basis of market prices as of the first day of the first month of the fiscal period deemed as a calendar year by the draft law. The lower limit of the value which is liable to payment of the personal tax is set at the level of Rb 3m, while that which is liable to the property tax, at the level of Rb 30m. The tax rate is proposed to be a progressive one. The tax schedule as regards the wealth tax is shown below.
The cost of the real-estate Tax rate, % The cost of the movables Tax rate, %
Fr om Rb 30m to Rb 50m. 0.3 Fr om Rb 3m to Rb 5m. 1
Fr om Rb 50m to Rb 100m. 0.6 Fr om Rb 5m to Rb 20m. 3
Fr om Rb 100m to Rb 150m. 1 Fr om Rb 20m to Rb 60m. 5
Over Rb 150m. 1 Over Rb 60m. 7
Separately, two tax rates are set for individuals who got their real property privatized: 0% - as regards taxable real property which value is within the range of fr om Rb 30m to Rb 150m and 0.3% - as regards the real property which costs over Rb 150m.
If introduced, calculation of the sum of the wealth tax will be carried out not by taxpayers, but tax authorities on the basis of the information provided by agencies which maintain the register of property projects and land plots, as well as authorities which carry out registration of transport means, sea and river vessels and airplanes.
Generally, it can be noted that the approach proposed in the draft law is free of those faults which were incidental to the concept of the wealth tax which was debated earlier. In particular, it was expected at the beginning that only individuals would be payers of the wealth tax. Such a situation would create loopholes for tax evasion through having a taxable property registered in the name of an entity.
However, the approach proposed in the draft law in question is characterized by a number of disadvantages. For instance, the deadlines for payment of the wealth tax (as one of the terms of taxation) are not determined by the draft law and for that reason under the applicable tax legislation the wealth tax cannot be included into the fiscal system of the Russian Federation. According to Article 17 (1) of the Tax Code of the Russian Federation, the tax is considered established provided that taxpayers and terms of taxation have been determined.
Introduction of the wealth tax is primarily aimed at implementation of the fiscal and distributing function of the fiscal system. However, as a result of introduction of the wealth tax the justice of taxation can be violated as taxable items which are liable to the new tax are already liable to other applicable taxes. For instance, the movables (transport means) are taxable items which are liable to the transport tax, while the real property is a taxable item which is liable to the property tax and the land tax which are charged from legal entities and individuals. Though the Russian legislation on taxes and dues does not have a provision which would directly prohibit taxation of one and the same taxable item by a few taxes, pursuant to the provision of Article 38 (1) of the Tax Code of the Russian Federation each tax is assigned its own taxable items. It is to be noted, that imposition of monetary limits for determination of a taxable item which is liable to the wealth tax suggests that such a taxable item can be regarded only formally as an independent one.
Efficiency of introduction of the wealth tax is not apparent, either. To charge it, not only cadastre and appraisal of the market value of the taxable item are required, but also an efficient system which forms such information needs be in place. In a situation wh ere the data required for computation of the tax is not available, the new chapter of the Tax Code may fail to work. It is to be noted that lack of a full cadastre and appraisals of the market value of real property projects is named among unsolved problems preventing a property tax reform. It is hard to expect that introduction of the wealth tax will permit to solve that problem.
In addition to the above, a switchover to taxation of property on the basis of appraisal of a market value requires setting up of the process of collection and preparation of the relevant information for taxation purposes. According to the draft law, it is proposed to introduce authorities which carry out cadastral accounting, maintenance of the state cadastre of the real property and state registration of titles to the real property and transactions with it (Rosreestr) in the system of fiscal relations between an individual and the state. In accordance with the draft law, such authorities are to be entrusted with appraisal of the market value of taxable items and provision of the prepared data on such a value to tax authorities. However, it means that a portion of functions related to tax administration will be assigned to authorities which are not directly related to taxation. Such a division of functions may result in tax administration becoming more complicated. Taking into account the fact that the new tax is to be computed by tax authorities, the latter will be at least dependent on a timely provision by Rosreestr of all the information required for calculation of the tax. With tax administration becoming more complicated, it may result in growth in expenses related to it. Due to the above, expenses on administration of the new tax may exceed revenues from it.
The issue of the lower lim it of the tax base is still debatable. There are two points which can be singled out. Firstly, with introduction of the wealth tax it is difficult to determine reasonably the minimum lim it of the value of the property up to which the tax is not charged. The notion "wealth" of an individual or a legal entity can be interpreted rather broadly and for that reason introduction of the wealth tax cannot but cause discontent of a certain category of taxpayers.
Secondly, if the market value of a property project happens to be just one ruble below the minimum lim it of the value set for luxury items there will be no need to pay the tax. Such a factor makes the concept of taxation vulnerable because an insignificant decrease in value which may be of a temporary nature or a result of market fluctuations does not mean that the wealth of a person has decreased and such a person is to be excluded from the number of persons who are obliged to pay the wealth tax.
One cannot, but take into account the fact that imposition of the lower lim it of the tax base as a fixed value does not mean at all that the range of payers of the wealth tax will be a stable one and strictly defined. Changes in the market situation, inflationary developments and price adjustments of real-estate transactions due to other factors will make an impact on the information received by tax authorities on the value of taxable items. As a result, a situation may arise wh ere liabilities of a person as regards payment of the tax are not actually determined unambiguously by the extent of his/her wealth as the fact of creation of such liabilities will become dependent on the results of appraisal of the market value of the property, rather than the fact of ownership of this or that property. In some cases, such appraisals will result in the need to pay the tax, while in others, not, though one and the same property is appraised. Due to the above, introduction of the wealth tax will require a regular revision of the tax schedule so that it could take into account and objectively reflect the actual economic situation.
Taking into account the fact that the wealth tax does not have taxable items of its own, a possible solution (instead of addition of a new chapter to the Tax Code of the Russian Federation) could be a differentiation of the rates of the existing property taxes (on real property, land and transport means) depending on the appraisal of the market value of the taxable item; it is to be noted that the budget effect will be the same as that from introduction of the new tax. Also, it could permit to smooth the discreteness of the wealth tax schedule.
Yet, a certain modification of the tax legislation will be needed. At present, the tax rate of the property tax for individuals has already been diversified depending on the appraisal of the value of taxable items, however, the aggregate value of properties situated in the territory of the same municipal entity1 is taken into account because that tax is a local one. As regards the wealth tax which is charged as a part of property taxes, it would be expedient to set progressive tax rates on the aggregate of all the properties belonging to the taxpayer, regardless of the location of such properties.
In addition to the above, utilization of such an approach does not diminish topicality of problems related to appraisal of the market value of taxable items. It seems that it would be expedient to introduce the functions of increased taxation on luxury items simultaneously with carrying out of the urgent reform of property taxes.
At the same time, taxation of luxury items as a part of property taxes will permit to reduce expectations that the new tax will perform distributing functions and become an instrument of social justice, the more so, social justice of such a tax can be called in question.
V.V. Gromov, Researcher of the Tax Policy Department
1 An exception is cities of federal importance - Moscow and St. Petersburg - wh ere tax rates are set by decision of legislative (representative) bodies of the state municipal authority.