What are the disadvantages of direct taxes
Targeted taxes are their advantages and disadvantages. Direct and indirect taxes, their advantages and disadvantages. Disadvantages of indirect taxes
At all times, governments of various countries have actively resorted to the use of indirect taxes to meet government spending.
Indirect taxes are taxes on expenses and whoever spends more pays them, that is, they are taxes on consumption. The payer of these taxes is always the end consumer of products, works and services and buys them at a price that already includes the tax. The peculiarity of these taxes is that they are transferred to the household not from the person who pays, but from the person who collects taxes from buyers when buying goods, performing work and providing services. Hence they are called indirect.
Indirect taxes are taxes that, due to their economic nature, represent a surcharge on the price of goods, works (services) sold. These are sales tax, payments calculated on the proceeds from the sale of products, excise taxes, sales tax, and other taxes on the proceeds.
In order to assess the effectiveness of the indirect tax system in world practice, several criteria are used, the most important of which are:
- - Neutrality: the tax should influence the command of the manufacturer and the choice of the buyer as little as possible, i.e. H. The economic distortions from the introduction of the tax should be minimal.
- - Fairness: The tax must have politically acceptable distribution consequences, i. H. The tax must be accompanied by reasonable changes in other taxes or the social payments system.
- - Price stability: the tax should not lead to inflation processes both during the introduction of the tax and in the long term.
- - Profitability: The tax must secure the necessary income for the state and prevent the avoidance and evasion of payments as far as possible.
- - Simplification of administration: the tax should seek to minimize the cost of calculation, payment by the taxpayer and collection and control of the payment by the tax authority.
Indirect consumption taxes can be divided into universal (VAT) and special (consumption) taxes due to their economic nature.
In modern tax theory, there are two main systems for collecting indirect taxes:
In the case of a single-stage tax, the tax is levied once in the production or sales phase. In this case, three subsystems are possible:
value added tax.
The producer tax is only levied in the manufacturing sector. A particular advantage of this collection system is the low cost of tax administration, as the number of taxpayers is small and the tax objects are very impressive. However, this advantage is outweighed by a number of disadvantages.
First, a number of manufacturing companies are involved in the development of products. In the future, the inclusion of all these companies in the tax system will result in the tax becoming a "pyramid". In order to minimize tax pressure, companies that are involved in the same production chain have an incentive to merge. The consequences of such a system are less efficient production and fewer taxes.
Second, the use of this system of tax collection does not guarantee its neutrality, i.e. the tax burden is unevenly distributed. In particular, the share of taxes in the price of identical goods can vary considerably depending on the number of companies involved in the production chain.
Wholesale tax is collected even before the retail sale. Compared to the manufacturer's tax, not only do the aforementioned disadvantages remain, but also the number of taxpayers, which creates additional difficulties in managing the tax.
Retail sales tax applies not only to retailers, but also to manufacturers and wholesalers, provided that products are supplied to direct consumers. The tax base is the retail price, which eliminates discrimination between different sales channels, but the group of taxpayers is expanding significantly, which makes the process of administering (collecting) taxes unclear and accordingly complicated.
In contrast to the single-stage collection, the multi-stage collection comprises several phases of the production and sales process and can be divided into:
cumulative multi-level collection;
non-cumulative tiered collection.
In a cumulative cascade system, the tax is levied at all stages of production and distribution. The main disadvantages of such a system are:
significant cascade effect, i.e. the greater the tax burden, the greater the distance to the consumer. In addition, the scope of such a "pyramid" is much larger compared to single-stage collection systems, since the tax covers all phases of the movement of goods from producer to consumer.
distortion of competition, as the tax burden increases with a longer production or distribution chain.
As a result, such taxes are rightly considered to be the most ineffective and off-market taxes, since they are levied without taking into account the results of economic activity, have a credit mechanism and therefore allow double taxation (of the cost of production). This reduces the economic impact of the social division of labor and specialization. In order to minimize the tax burden there is also an interest in the creation of vertically integrated associations covering almost all stages of production, and this is a move in the opposite direction from the social division of labor and specialization to “subsistence farming”.
It should be noted that these disadvantages dominate when using high tax rates.
Paradoxically, however, cumulative systems, with all their shortcomings, are the most widespread and have been maintained for a very long time and remain the main systems for collecting indirect taxes in individual countries to this day. This is most likely due to a but very important benefit. It consists in providing the state budget with a relatively high income at a sufficiently low tax rate. However, if the tax rate goes beyond "low enough", the tax slows economic development and negates these benefits.
Unaccumulated tiered taxes are represented by VAT, which is an important source of income in most countries around the world. It should be noted that the use of this system makes it possible not only to realize the advantage of the cumulative system, but also to avoid almost all of its disadvantages.
The economic importance of this tax is explained by the fact that in countries with a developed market system, VAT helps to strengthen their equilibrium. This is achieved by playing a regulatory and stimulating role alongside the fiscal one.
The main advantage of VAT is that it can have a regulatory effect to contain the crisis of overproduction and accelerate the exclusion of weak producers from the market. It acts as a demand limiter at a high degree of market saturation when the consumer reacts to an increase in the price of a product by reducing the volume of consumption and a manufacturer reacts to a price decrease by increasing production.
VAT is an indirect multilevel tax as it is included in the price of the product and is ultimately paid by the end consumer. The object is the added value, the subjects are legal persons, regardless of branch affiliation, form of ownership.
The main advantages of VAT are:
the use of a uniform tax rate for all industries or several uniform tax rates for individual industries, preferential rates for individual industries
ensuring the effective level of taxation for all industries and types of economic activity, including the service sector;
simplicity and reliability of the tax collection procedure for the payer and tax authorities;
a stable source of increasing government revenue;
the possibility of harmonization with taxation in neighboring countries.
VAT is also an effective means of regulating foreign trade: in order to promote the increase in export potential, exporting companies are reimbursed for the entire amount of tax paid in the previous phases.
Of the negative aspects of VAT, it should be emphasized that it is regressive for the end user and that when it is introduced a new calculation of production costs is required. In addition, its application leads to an increase in administrative costs due to the expansion of the group of taxpayers.
The assessment of the place and role of VAT in the Belarusian economy is ambiguous. Practitioners believe this tax is the best way to meet budgetary needs and analysts criticize it as overly fiscal, the tax base has not been worked out, and tax rates are high.
The Republic of Belarus also uses one-tier systems for collecting indirect taxes. We are talking about manufacturer taxes (excise duty) and retailer taxes (sales taxes, taxes on certain types of services).
The advantages of indirect taxes:
- 1. Indirect taxes are characterized by ease of payment and regularity of budget income. Maintaining and controlling indirect taxes does not require expansion - the tax apparatus.
- 2. Since indirect taxes increase government revenues because of population growth or its well-being, they are more beneficial for countries that are developing economically.
- 3. Taxes affect total consumption by increasing the price of a product. At the same time, the restraining influence of the state on the consumption of products that are harmful to the nation's health and morality is particularly important.
- 4. From the point of view of the man on the street, direct taxes are paid to the state for free, the indirect tax is disguised in the price of goods, and if the payer finds that the tax is increasing the price, he still receives the required product in return.
- 5. For the final consumer, indirect taxes are convenient because they do not require the accumulation of certain amounts due to the level of consumption, the convenience of timely payment, proximity to the place of deposit, lack of obligation, lack of time wasted on contribution.
The disadvantages of indirect taxes include:
- 1. In fact, the tax is paid by the head of the family and formed by all family members. Direct taxes determine the average tax capacity, while indirect taxes implement the principle of self-taxation, since the payer regulates the individual tax capacity with the help of indirect taxes.
- 2. Since the right to levy indirect taxes is almost never questioned, the subject of political controversy is usually income tax or profit tax.
- 3. Indirect taxes fall disproportionately to their capital or income, which overburdens the low-wage population.
- 4. Indirect taxes in the conditions of relations with developed markets limit the profit for entrepreneurship, since in a competitive environment it is not always possible to increase the price by the amount of indirect taxes, especially in cases of an increase in tax rates.
A direct tax is usually referred to as a tax paid directly by the person that the state wants to collect.
Direct taxes - taxes, including mandatory payments, the source of which is profit (income). The list of direct taxes includes income and income taxes, income taxes, real estate taxes, individual taxes on sole proprietorships and other natural persons, business tax, and local taxes calculated on profits.
Finding the optimal combination of direct and indirect taxes is one of the most important strategic problems in tax policy. It is known that in countries with developed market economies, the tax system tends to direct taxes that directly implement not only the tax but also the distributive function of taxation.
In the past, direct taxes appeared before indirect taxes. Direct taxation is the simplest and oldest form of tax collection. The original types of direct taxes were tithe, capital, or poll tax.
It should be noted that, historically, direct taxes can be divided into three main types. The subject of the first type of tax is material capital, while certain types of income are taxable (property tax, property tax, inheritance and gift tax). The subject of the second type of tax is the independent manifestation of personal capital such as personal income, housing, occupation (income tax, tax on citizens' property, dividends). The subject of taxes of the third type is the total activity of material, monetary and personal capital in production (income tax, trade tax). As you can see, direct taxes are based on either people or income regardless of source or property regardless of income.
Proponents of direct taxation consider it the most advanced form, as on the one hand the income and general financial situation of the payer, his assets are taken into account and on the other hand there are certain difficulties in transferring direct taxes to other persons or evading them.
Direct taxes currently form the basis of tax systems in developed countries because they have a number of advantages over other types of taxes. The main advantages of direct taxation are as follows:
- 1. Economic - direct taxes make it possible to establish a direct link between the payer's income and his payments to the household.
- 2. Regulation - Direct taxation is an important financial lever for regulating economic processes (investment, capital accumulation, total consumption, doing business, etc.).
- 3. Social direct taxes help to distribute the tax burden so that those members of society who have higher incomes have high tax expenses. This tax principle is considered to be the most equitable.
However, the disadvantages of direct taxes should also be considered:
- 1. Organizational - A direct form of taxation requires a complex mechanism for collecting taxes as it involves a rather complex method of accounting and reporting.
- 2. Control - The control of the receipt of direct taxes requires a significant expansion of the tax apparatus and the development of modern methods of accounting and control of the payer.
- 3. Police - Direct taxes are linked to the possibility of tax evasion due to incomplete financial control and the presence of trade secrets.
- 4. Budget - Direct taxation requires a certain development of market relations, since the real market price can only be formed in a real market and consequently real income (profits) and losses can occur with the same probability. Hence, direct taxes cannot be a stable source of budget revenue.
In addition to indirect taxes, direct taxes and fees make a significant contribution to the formation of household revenues, the list of which includes income tax and income tax, income tax, property tax, a single tax on individual entrepreneurs and other persons, and local taxes calculated on profits.
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Choosing a tax system (simple version)
Release DATE: August 2009
This article provides a simplified and generalized presentation of the differences between tax systems in the Russian Federation. It is useful for inexperienced business people and only those who are interested. If you are interested in more detailed information, you can read our article Choosing a tax system - an expanded version, or immediately start studying the tax legislation of the Russian Federation, declarations and instructions from the Ministry of Finance, decisions of the courts of the Russian Federation.
Today, depending on the indicator and type of activity, the company can choose one of the following tax systems.The Unified Imputed Income Tax (UTII) and work based on a patent are not considered in this article.
A plus is the taxes that are paid under this tax system, a minus that is not paid.
Taxes that are not paid under the simplified tax system have been replaced by a single tax. Depending on the tax object selected, this can be 6% of income or 15% of the difference between income minus expenses. By 6% of the simplified tax system, this tax can be reduced to 3% due to the taxes paid on the wage fund. For the simplified tax system with the aim of taxation, income and expenses, the minimum amount of taxes paid is 1% of income
The following table lists the main advantages and disadvantages of tax systems. Of course, this table reflects our view of the pros and cons. For certain companies, the positive and negative aspects of tax systems may be different.
|Basic system (OSNO)||STS (income) 6%||STS (Income-Expenditure) 15%|
To decide which of the tax systems will be more effective for your company, you need to understand the direction of activity, the projected profitability and number of the company, and the composition and structure of expenses.
If you plan to grow your business rapidly that does not allow you to keep the business within the limits of the amount of income, number or residual value of fixed assets, then choose the usual tax system (OSNO). Also, OSNO must be selected if your customers are unwilling to work with a company whose costs for services or goods do not include VAT. However, in some cases it is more profitable to give a discount on VAT than to work on the general tax system.
If your main customers are individuals and you are not very quick to predict going beyond the corporate restrictions of the simplified tax system, go for a simplified tax system. It remains only to choose the subject of the tax income or the income, which is reduced by the amount of the expenses.
For companies with low costs, the simplified tax system with the aim of taxing "income" is beneficial. According to our calculations, this system is profitable until the level of spending reaches 60 percent or more of income.
For companies whose share of the expenditure is more than 60% of the income amount, a simplified simplification with the object "income minus expenditure" is most likely suitable. The minimum tax burden (without deductions from the fleet) can be up to 1% (minimum payment).
Contact us and we will help you make a motivated choice of both the tax system for your company and the tax object.
|Transition option||How to proceed and what to do|
|Mandatory from the simplified tax system to the property tax system if the criteria of article 346.12 of the Tax Code of the Russian Federation are not met (for example, you exceeded the maximum income, exceeded the number of employees or opened a branch of the company).||Within 15 calendar days from the end of the quarter in which the right to use the simplified tax system has been lost, it is necessary to inform the tax authority of the loss of such right to submit accounting and tax reports for the quarter indicated, which after be calculated according to the usual tax system and pay the appropriate taxes ...|
|On a voluntary basis from the OSNO to the simplified tax system (subject to the established indicators in terms of number, income, residual value of fixed assets, etc.)||Notify the tax authorities in the prescribed form within the period from the date of filing the reports for 9 months (from October 1st) to November 30th of the current year|
|Newly created organization||Submit an application in the prescribed form within 5 days from the date of registration, or better, at the same time as the registration documents.|
|Change of the tax object of the USN||Submit an application in the prescribed form to the tax authorities by December 20th of the current year|
|On a voluntary basis with STS on OSNO||Submit an application to the tax authorities by January 15 of the year the transition is expected|
|Return to STS with OSNO||Allowed no earlier than 1 year after the loss of the rights to use the simplified tax system|
The main disadvantage of indirect taxes is that they have to assess the taxable ability of the payer on the basis of intermediate factors, such as the cost or consumption of a person, while the actual solvency does not always and not fully correspond to such moments. In addition, with indirect taxation it is very difficult to achieve uniform taxation. When the same basic needs are imposed, indirect taxes become inversely proportional to the means of the payer.
On the other hand, indirect taxes help implement the generality of taxation, which in the current state of the economy cannot be achieved through direct taxation of income and capital. Indirect taxes are relatively insensitive to payers and offer the opportunity to raise funds to cover today's enormous public expenditure.
Some also attribute the benefits of indirect taxes to the fact that these taxes are paid as if they were voluntary and that they contribute to frugality without extending to the portion of income saved. However, this cannot in any way apply to taxes on basic necessities that are out of the question of paying them voluntarily.
The main advantage of indirect taxes lies in their high fiscal qualities, which explain the widespread and strong development of these taxes.
Types of indirect taxes
Indirect taxes on the survey items are divided into: consumption taxes, tax monopoly, customs duties.
Industrialized countries are dominated by excise taxes - Indirect taxes on goods and services produced by private companies. Excise taxes are levied on domestically manufactured goods, in some countries excise taxes are also levied on goods imports (Russia). According to the collection method, excise duties are divided into individual taxes, which are set for certain types and groups of goods and are universally levied on the value of total gross sales (VAT). Universal excise taxes are more profitable from a tax point of view (with the expansion of the range of goods, the receipt of universal excise tax in the household increases), they are levied on all goods sold. Originally, the general consumption tax was levied once (consumption) in retail. After WWII, a cascading sales tax was introduced (i.e. it was levied at all stages of production). Today it is characterized by a one-time taxation. A type of universal consumption tax is value added tax, which, in contrast to sales tax, is not levied on the entire value of the goods, but only on the part of the added value that is achieved in a certain stage of production. The added value includes: wages, depreciation, interest on credit resources, overheads.
The second type of indirect taxgovernment - tax monopoly - The state monopoly on the manufacture and (or) sale of certain goods pursues a purely tax objective. The rates are not fixed because the state is a monopoly on the production of certain types of goods (e.g. wine and vodka products) and sells the goods at a very high price that includes the tax itself. The tax monopoly can be partial (or production or sale) or total.
The third type of indirect tax - These are taxes on foreign trade: tariffs. They are divided into:
1. by type - for export, import, transit;
2. for the creation of interest rates - for certain (fixed in a fixed amount), ad valorem (as a percentage of costs) and complex (a combination of specific and ad valorem interest rates);
3. on the economic role - tax, protectionist (to protect the domestic market from imported goods), anti-dumping (increased tariffs on goods imported at dumping prices), preferred (preferential system - preferential tariffs on an imported product or on all imports) ...
20. The relationship between direct and indirect taxes.
Assessing the ratio of direct and indirect taxes in Russia is essential not only from the point of view of choosing the priorities of tax policy, but also from the point of view of the possibility of using foreign experience. Undoubtedly, the implementation of international developments in this area should take into account the economic and political situation, mentality and differences in national legislation on taxes and fees. As a result, judicious use and improvement of foreign methods in Russian reality can lead to the calculation of the optimal model for the ratio of direct and indirect taxes.
Therefore, in order to create an effective and sustainable tax model in Russia, it is necessary to determine the optimal level of the ratio of indirect and direct taxation, namely their participation. In addition, it is necessary to assess the influence and the ratio of the types of taxes within these two tax groups, that is, to achieve their optimal value (tax burden that would be both favorable to the taxpayer and acceptable to the state).
In foreign practice there are four basic models of tax systems, depending on their focus on direct and indirect taxes.
The Anglo-Saxon model focuses on direct taxes from individuals; the proportion of indirect taxes is insignificant. For example, in the United States, income tax represents 44% of household income. Household payments exceed corporate taxes. This model is also used in Australia, the UK, Canada and other countries.
The Eurocontinental model is characterized by a high proportion of social security contributions and a significant proportion of indirect taxes: The income from direct taxes is many times lower than the income from indirect taxes. In Germany, for example, the share of income from social security is 45% of budget income, from indirect taxes - 22% and from direct taxes - only 17%. The indicators are similar for other countries based on this model - the Netherlands, France, Austria, Belgium. The Latin American model focuses on the introduction of traditional indirect taxes due to high inflation. The share of indirect taxes in the country's budget revenue was 46% in Chile, 42% in Bolivia and 49% in Peru. The mixed model, which combines features of other models, is used in many countries. States choose it to diversify the income structure and avoid household dependency on a particular type or group of taxes. A special feature is the considerable predominance of the share of direct taxes from organizations compared to the share of direct taxes from individuals. The Russian tax system is representative of the Latin American and Euro-continental models, i.e. it is characterized by a priority in the distribution of the tax burden from indirect taxes on companies (approx. 70%).
In Russia “the objectively prevailing economic conditions do not yet allow a focus on the Anglo-Saxon model, but there are already real opportunities for the transition to a mixed tax burden model in which direct income taxes and indirect taxes on companies are distributed roughly in equal measure entire tax revenue would be distributed.
on the budget and off-budget funds ”.
For an even distribution of direct and indirect taxes, a certain balance must be calculated and established, since individual taxes and fees must productively coexist with one another and with the tax system as a whole - with the external environment. In this case, it is possible to use the experience of abroad, but the main thing is to take into account the specifics of the economic development of Russia.
The tax system in Russia includes direct and indirect taxes. These are two large groups that make up the tax burden on individuals and legal entities in the country. What are direct taxes and what are indirect taxes? How do they differ and why are they needed? A comparative table for these groups is given below, specific examples are also considered.
The tax system plays a key role in creating the revenue side of the household. One of the indicators of the financial stability of the state is the level of development of the tax system. Ordinary citizens often confuse the terms tax and levy and view the levy as a tax. However, these are completely different formulations. To make it easier for an ordinary citizen to find their way around the tax system of our state, we will consider the main parameters of taxes, as well as their types.
The domestic tax system divides the tax into two broad groups:
Direct tax payment is characterized by the lack of intermediaries in the establishment of tax payments. In the direct method of tax collection, the payment amount is set in proportion to the size of the taxable property. For example, a common contribution such as income tax is set in proportion to the profit made over a period of time.
The indirect retreat system has a completely different structure. An indirect tax, as opposed to a direct upfront tax, is included in the price of a product or service, and the consumer pays the tax when the item is purchased. A prime example of an indirect contribution is VAT. Almost everyone has paid this tax at least once in their life. It's included in the cost of a product. Usually they write on the check "the cost of 100 rubles including VAT". The VAT in this case is an indirect tax.
Direct tax - This is a compulsory contribution to be paid by every citizen of the Russian Federation who owns the property for which such payment is required. This property can include both movable and immovable property. For example, the tax code stipulates a tax on a property. According to its regulations, the owner of the property is required to pay taxes every year. The size is determined taking into account the dimensions of the site, the location and other parameters.
It turns out that the law refers to the direct model of collecting fees only on the property owned by the taxpayer. This direct method of collecting taxes enables the state to replenish its budget on a regular basis.
Experts note that the main disadvantage of such a system for receiving budget contributions is the company's ability to hide its tax returns. Meanwhile, the consequence of deliberately obscuring tax information is severely destabilizing the country's budgetary area.
Indirect tax - This is financial income from the state budget, which is formed according to the principle of a premium for the object or service sold.The state obliges the sellers to include in the goods they sell a certain part of the payment, which does not relate to the profit of the company, but flows into the budget of the country. In this case, the seller who imposes such a premium acts as an intermediary. The profit from this does not decrease or increase, while on the contrary the state gets its finances through indirect intervention.
The main advantage of hidden indirect payments is their stability and secrecy. In addition, this type of seizure is not influenced by various economic factors. In any case, the state can set a hidden premium for the goods sold. With a decline in economic indicators, the state succeeds in replenishing budget funds rationally thanks to indirect tariffs.
An indirect system also has a negative side. Implicit taxation is the same for everyone, which puts a lot of pressure on the low-income population. Why the poor? Everything is very simple. When the government increases its excise duty, food prices will automatically increase. In order to distribute the financial burden fairly, an initiative to reduce the added value of essential products has been taken more than once. So far, however, the system has remained uniform and there is no talk of any differentiation of the additional payment in the near future.
Differences Between Direct and Indirect Taxes
Let us now consider the special features of the individual tax types using a special table.
|index||Direct tax||Indirect tax|
|Pay direct from the owner of the property||End user pays|
|Communication system with the state||Just||Through intermediary (seller)|
|Subject of taxation||A taxpayer's movable and immovable property||Product or service sold|
|Factors that determine the level of the tax rate||The amount of income of the citizen, type of taxable property||The price of the product|
|The degree of openness||The taxpayer knows in advance the amount of the tax and the obligation to pay||Is hidden, and often unaware of the consumer, that the price of the goods includes taxes|
|Complexity of the calculations||Complicated||Easy|
|Dependence on related factors||Exists||Absent|
Examples of direct taxes
The most extensive group of direct taxes is property tax. These include:
- Tax payments established for the use of movable and immovable property by legal entities. It is set annually. This money goes straight to the budget of a particular region.
- Taxation of Individual Property - requires citizens who own land or housing to make an annual payment set by the state.
- Transport tax. Unlike other payments, customs were originally regional in nature. This means that certain regions have the right to change the tax rate or the collection terms at their own discretion.
- Business tax. Therefore, any casino or bookmaker licensed to conduct gambling business must pay a certain amount to the treasury.
- Taxation of profits from mining. In our country, these payments replenish over 30% of the total budget. The amount is determined depending on the prices of the extracted raw materials. For example, the tax on oil production is set in proportion to the current prices per barrel.
Another group also provides a stable flow of funding for the state treasury. These are income taxes. These include:
- National payment from a person's monthly income. In this regard, domestic citizens are more prominent than the same Europeans. On average, only 13% of the Russians are held back by the Patch.
- Contribution from the profit of legal persons. Any organization engaged in entrepreneurial activity is required to pay taxes, the amount of which is determined by the volume of profits of the organization for a certain period of time.
Examples of indirect taxes
The highest collection rates result from VAT and consumption taxes. Excise taxes according to Russian legislation are established: on alcoholic beverages, tobacco products, fuel, etc. By setting an additional price for the finished product, the state creates a kind of guarantee of receiving funding for its budget.
Best regards! The Russian media are increasingly pointing to imminent changes to the tax code. Regional budgets are empty - they urgently need to be filled. This time the government decided to take the "rich" seriously. And in a few years we could go back to a progressive income tax scale. Or not?
Today we are going to talk about what a unified and progressive scale of income taxation is. And we will try to find out which system is better for Russia and why.
In modern Russia, income tax was first introduced in April 1916 by decree of Nicholas II - at the height of the First World War. Incidentally, the ancestor of modern income tax had a progressive scale: from 7% to 12%.
In the 100 years that have passed since that moment, the tax calculation system has been revised more than once. And for the bad and for the good for the payers.
Russia has had progressive taxation since 1998. What is the difference between a flat (even, single) scale and a progressive one? The fact that in the second option, the income tax rate depends on the level of income of the individual. In the late 1990s it was 12%, 20% and 30%.
In 2001, Chapter 23 of the Tax Code of the Russian Federation “Income Tax” was adopted. Income tax has a new name "Income Tax". The payers were divided into two categories: residents and non-residents.
Well, and most importantly, the income tax rate has become the same for everyone - 13%. Since 2001, the Russians have given the state a little more than a seventh of wages and bonuses, income from sales of real estate and cars, rental of real estate, and dividends on stocks. In general, the family budget accounts for 13% of total income.
Certain types of income were increasingly increased by 35% (e.g. lottery winnings). And there was a long list of incomes that were completely exempt from income tax (pensions, grants, alimony, benefits).
In the first two years after the abolition of the progressive scale, personal income tax receipts in the household increased by a third! In the 2000s, the flat system became the hallmark of the Russian economy and one of the few competitive advantages of the Russian tax system.
Was the flat scale really that effective? In other countries it is almost never used. Not everything is that obvious.
The explosive growth in tax revenues was triggered by several factors:
- The general income tax rate increased by 1% for most people (before that the minimum was 12%, not 13%).
- Eliminate benefits for the military, judges, prosecutors, customs officers, police and even tax officials. As a result, the number of taxpayers has increased by nearly a million.
- In 2001 the tax burden in the economy was generally eased (income tax and VAT rates were lowered). This enabled the company to redirect some of the tax expense for paying salaries to employees
- The income of the population grew every year. Russia has entered the era of the "well-fed oil years"
In other words, the effectiveness of the transition from a progressive to a single scale was grossly exaggerated.
In which countries is there a single income tax scale today?
Among the countries of the former USSR, the flat scale is used in Russia, Georgia, Ukraine, Latvia, Lithuania, Estonia, Kazakhstan and Kyrgyzstan. Abroad, the company operates in Hungary, Bulgaria, Albania, Macedonia, Romania, the Czech Republic, Mongolia, Hong Kong and the Channel Islands (Guernsey and Jersey).
A uniform tax scale is also relevant for individual federal subjects in large countries. For example, for the Canadian province of Alberta and some US states: Massachusetts, Pennsylvania, Michigan, Indiana, and Illinois.
Interesting fact. The flat tax rate is not used in industrialized countries with strong economies!
Let's say that in France the income tax rate is between 5.5% and 75%. The income of the French is divided into eight categories. The income is not calculated per person, but per family. The tax-free minimum is 6,011 euros per year.
Examples of other progressive scale countries: United States, United Kingdom, Sweden, Denmark, Spain, Canada, Germany, China, and Israel.
With 13% income tax, Russia is one of the ten largest European countries with a minimum income tax rate. Together with Kazakhstan, Belarus, Lithuania and Bulgaria.
Is Russia returning to progressive proportions?
In fact, the direct income tax scale is only used in poor European countries. And in almost all countries of the former USSR. Perhaps that is why the question of the transition to a progressive income tax in Russia has been raised more and more frequently in the last two years?
In August 2016, the LDPR MPs submitted a sensational bill to the State Duma.
It is proposed that Russians with a salary less than 180,000 rubles per year should be exempt from income tax. It is recommended to leave the rate of 13% for people with an annual income of up to 2.4 million rubles. And for the "rich" a fixed tax of 289 thousand rubles plus 30% of income over 2.4 million rubles was levied.
When will the new scale be introduced? So far, they promise that this and similar projects will be considered at the end of the 2024 elections at the earliest.
Arguments against the introduction of a progressive tax scale
Will Russia have a progressive income tax scale? The system has both advantages and disadvantages. And the disadvantages still outweigh.
- The population and business will massively "overshadow" and hide their income
The validity of this argument is indirectly confirmed by the results of the tax reform of the 2000s. After the introduction of a flat rate, income from income tax rose by 0.7 to 0.8% of GDP. And many Russian business people and individuals have actually stopped evading taxation.
The introduction of a progressive scale can provoke the reverse process. The rich will "hide" their income again () and the volume of household income will decrease. And the main financial burden will fall on the middle class again.
- Process and administrative costs will increase
Why? Because the population has to declare their income independently.
Today almost all individual incomes are subject to a flat rate of 13%. And tax advisors (banks, brokers) take over the "communication" with the tax authorities completely.
However, the progressive scale will force Russians to independently consider income from different sources, summarize them, fill out a tax return and submit it to the relevant authorities.
In 2019, neither the population nor the tax authorities are ready for such an activity.
- The difference between rich and poor regions will deepen
Income tax does not go to the federal government, but to the regional and local households. In other words, Moscow and St. Petersburg will receive even more than the impoverished Ryazan and Yaroslavl regions. Such "discrimination" is likely to exacerbate interregional tensions.
- Business mistrust of the government will increase
Since 2001, the President and Government of the Russian Federation have made many promises not to change the income tax rate. The breach of promises will once again increase the authorities' distrust of companies and the outflow of private capital abroad.
The flow of investment will decrease - production will decrease - the unemployment rate will increase. As a result, both the rich and the poor will lose.
Let me remind you that the 2011 insurance premium increase was achieved without enthusiasm, to say the least. And the introduction of a progressive income tax scale will only add fuel to the fire.
If not a progressive scale, what then?
Nobody argues that there is a need to improve the system of calculating income tax in Russia. It is not at all necessary to change the flat scale to a progressive one!
Experts suggest other softer options. One of them: increasing the percentage of tax deductions in individuals' taxable income.
The nature of tax deductions is fair and obvious. Each of us has daily needs that must be met - otherwise we will not survive. And the state should not "tax" the portion of income that is used to maintain normal living standards.
All that remains "from above" is the taxpayer's economic benefit. Which can and should be taxed. Without tax deductions, income tax becomes a “tax for the poor”.
Let's consider a conditional example. Misha earns 10,000 rubles a month, and Oleg - 100,000 rubles. Hypothetically, you can eat for 10,000 rubles, put on used clothes, buy inexpensive household chemicals for your home, and pay for a tiny apartment and the Internet.
That is, 10,000 rubles is the minimum amount to support Misha and Oleg's life. But the first spends all of his income on current needs, while the second still has 90,000 savings and.
"To be honest," Misha doesn't have to pay any income tax at all. What kind of income are we talking about when he spends everything he earns on essential goods? But it is fair to tax Oleg's "extra" 90,000 rubles - this is a purely economic benefit.
In Russia, tax deductions are actually equated with benefits. Liquidators of the aftermath of the Chernobyl disaster, participants in World War II, heroes of the USSR and the Russian Federation have the right to NV. By the way, the amount of tax deductions is terrifying: from 500 to 3000 rubles!
Why not increase the withholding tax to a reasonable amount? Then it would be possible to deduct NV from a person's income and tax the difference at an increased tax rate. This approach is much fairer than a single and progressive income tax scale.
How do you assess a possible revision of the income tax scale in Russia?
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