Tax update: Vladimir Putin proposed increasing personal income tax rate for high-income Russians

Russian President Vladimir Putin proposed starting January 1, 2021, to increase the tax rate on personal income (PIT) from 13 to 15% for citizens earning more than 5 million rubles a year. The head of state said this on Tuesday, June 23, during an appeal to citizens.

“Not all incomes will be taxed with an increased rate, but only that part of them that exceeds 5 million rubles,” the Russian leader said.

According to him, as a result, the country's budget will additionally receive about 60 billion rubles a year. This money will go to treat children with serious illnesses.

“I propose to color the funds, experts say, to protect from any other use and to specifically target children with severe rare diseases: to purchase expensive drugs, equipment and rehabilitation, to carry out high-tech operations,” Putin added.

As explained to RT by the vice president of the all-Russian public organization of small and medium-sized enterprises "Support of Russia" Pavel Sigal, the initiative of the president means the rejection of a flat tax scale. The corresponding system was introduced in Russia back in 2001 - since then, all citizens of the country have paid personal income tax at a single rate of 13%.

“The proposal to increase the tax rate from 13 to 15% for citizens with incomes exceeding 5 million rubles per year is a step towards introducing a progressive taxation scale in Russia. This initiative will eventually reduce tax rates for low-income citizens. And, of course, such an approach throughout the world is considered fairer in the distribution of income than a flat tax scale, ”said Pavel Sigal.

In addition, Vladimir Putin proposed to significantly reduce taxes for the IT industry. According to him, first of all, it is necessary to reduce the burden on the wage fund - the main expense item for high-tech companies.

“Now the premium rate for such companies is 14% for the period until 2023. I suggest reducing it to 7.6%. And not temporarily, but indefinitely. In addition, it will be right to significantly, by an order of magnitude, reduce the income tax rate for IT companies, also, of course, indefinitely, from the current 20% to 3%, which is not only comparable, but even better than in such attractive today for IT businesses jurisdictions like Indian and Irish. In fact, it will be one of the lowest tax rates in the world, ”Putin explained.

In many ways, the president’s proposal will significantly increase the growth rate of the high-tech industry in Russia. This point of view in a conversation with RT was expressed by the economist of BCS Premier Anton Pokatovich.

“Mitigation of tax conditions for the IT sector is a timely solution. The IT industry is one of the few business segments whose companies have been able to strengthen their market position during the pandemic. With this introduction, easing tax conditions for the IT industry can lead to a moderate acceleration in the growth rate of this segment of the Russian market, ”said the expert.

Housing answer

Also, Vladimir Putin proposed to expand the program of preferential mortgages at a rate of 6.5% per annum. Recall that in April, Russians were able to get a mortgage loan with a corresponding rate of up to 3 million rubles until November 1, 2020, and up to 8 million rubles in Moscow, Moscow Region, St. Petersburg and the Leningrad Region. Meanwhile, during a speech on June 23, the president announced the need to increase the loan limit.

“Now it is necessary to expand opportunities for choosing comfortable modern housing. I propose to extend the preferential mortgage to new housing worth not up to three, as before, but up to six million rubles, and in the largest agglomerations - Moscow, St. Petersburg - up to 12 million rubles, ”Putin said.

According to him, more than 45 thousand Russian families have already issued a preferential mortgage. Moreover, as the head of the Central Bank Elvira Nabiullina said on Tuesday, in May, almost a third of all housing loans were issued at a reduced rate. According to experts, the president’s initiative will significantly increase the scope of the program.

“The choice for the buyer will increase significantly. Accordingly, the Russians will be able to purchase not only economy housing, but also business-class projects. The coverage of the program at the expense of citizens with higher incomes will expand. Accordingly, the choice of apartments and the client base are increasing, ”said Irina Radchenko, vice president of the International Academy of Mortgage and Real Estate.

Bonus Support

Vladimir Putin also announced new measures to support business in the context of the coronavirus pandemic. In particular, the head of state proposed to allocate another 100 billion rubles for loans to enterprises at 2% per annum.

Recall that the corresponding preferential credit program has been operating since June 1 and is intended for companies in the sectors of the economy affected by the coronavirus pandemic. The business should use the money received to pay salaries to employees at the rate of one minimum wage (12,130 rubles) per employee. 

The loan provided to companies is 85% secured by state guarantees. Moreover, the loan itself can be partially or completely written off if employers retain jobs.

“The measure is in demand, applications from 90 thousand companies, where 2 million 400 thousand employees work, have already been approved. But demand, as we see, turned out to be much higher than the government had originally planned. Therefore, I propose to expand this support measure, this program, to allocate another 100 billion rubles for its implementation, and thus additionally support enterprises and their workers at the stage of breaking the restriction regime and thereby accelerate the recovery of the economy and employment, ”Putin said.

In addition, the president announced the extension of the support program for families with children. According to Putin, in July such families will again be paid an additional 10 thousand rubles for each child under 16 years of age. At the same time, citizens who have already received such payments in June will not have to resend the application.

“The largest scale support measure was a one-time payment in June of 10 thousand rubles for each child from three to 16 years old, these funds in difficult times became an aid to Russian families. At the same time, the economy has not yet fully earned, and unemployment has grown, difficulties have not yet receded. In this regard, I consider it necessary once again in July to pay an additional 10 thousand rubles for each child from birth to 16 years, ”Putin said.

According to him, the proposed measure will be able to take advantage of Russian families in which about 28 million children grow. According to experts, the initiative of the authorities will be able to support consumer demand and thereby accelerate economic recovery.

“The second payment measure of 10 thousand rubles can support the population in the face of the consequences of the pandemic. Already, the first payment has received more than 11 million people across the country. The initiative will support consumer demand, which will have a positive impact on the Russian economy as a whole, ”concluded Pavel Sigal.