Fiscal reset: how tax initiatives of the authorities can support the economy and Russians during a pandemic

In 2020, the consequences of the coronavirus pandemic have become a heavy burden on the Russian economy.

Against the background of the introduction of quarantine restrictions from April to June, Russia's GDP decreased by 8% at once, and by the end of the whole year, the decrease may be about 4%.

Meanwhile, the observed economic downturn was more restrained than in a number of other states.

“Contrary to negative forecasts, the recession in Russia was not as deep as in many countries of the world, and the recovery processes are even more dynamic.

First of all, thanks to the timely decisions of the president and the actions of the government, ”said earlier Prime Minister Mikhail Mishustin.

According to him, the government promptly took a number of measures that made it possible to support the population and business in a difficult period.

We are talking about providing credit vacations, as well as soft loans for companies and entrepreneurs.

In addition, tax breaks have become one of the key factors in helping businesses.

So, for small and medium-sized enterprises, insurance premiums were reduced.

This benefit will become permanent and will continue even after the crisis.

At the same time, the authorities took unprecedented measures to support IT companies in the form of a reduction in the income tax rate from 20% to 3%.

Another measure was the actual introduction of an investment incentive.

According to experts, the regions had a legal opportunity to provide investment incentives for business for a long time, but in fact this measure did not work, since the regional budgets did not have funds for this.

Now, thanks to financial support from the state, companies have received the right to reduce income tax by the amount they spent on the creation or modernization of production equipment.

“The whole range of measures that we took during the fight against coronavirus and the economic crisis paid off.

Now we must move on to solving new tasks, and the unconditional fulfillment of all social obligations of the state to the people is still at the forefront, ”Mikhail Mishustin said.

High spending

Meanwhile, just by reducing insurance premiums, deferring and writing off taxes, the country's budget has lost about 1 trillion rubles.

Against this background, by the end of 2020, the expenses of the Russian treasury may significantly exceed revenues.

Thus, according to the Ministry of Finance, the budget deficit will amount to 4.4% of GDP.

“The budgetary policy in 2020-2021 is primarily focused on helping to combat the pandemic and its consequences.

In order to support citizens and businesses, packages of measures are being implemented, in value terms amounting to about 5% of GDP, ”said the head of the department, Anton Siluanov.

Against the background of increased budget spending, the government plans to increase borrowing to replenish the treasury.

In 2020, experts expect that in pure form they will amount to 4-4.5 trillion rubles, which is twice the last year's figure.

In 2021, the volume of borrowings should increase by another 875 billion rubles.

As a result, Russia's national debt may approach 20% of GDP, but this level remains harmless, Siluanov is sure.

In addition, to cover the deficit in 2020, it is planned to spend about 350 billion from the National Welfare Fund (NWF). Also, in 2021, funds will be mobilized through spending cuts.

The indexation of civil servants' salaries is canceled, all budget spending not related to social obligations has been cut by 10%, the state armaments program has been cut by 5%.

As a result, next year the budget will receive an additional 900 billion rubles.

Additional measures

Meanwhile, experts admit that the proposed measures to balance the budget are still insufficient.

In this regard, the Cabinet of Ministers announced the draft tax laws, which allows providing the necessary treasury revenues.

“Some big companies say that we only take money from oil companies.

This is not true.

We believe that in a difficult situation, everyone should take part in solving the problems facing the country and people.

This is our deliberate policy, ”Mishustin said.

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• © Dmitry Astakhov

Thus, the government increases taxation of a number of lucrative industries.

In particular, the Cabinet of Ministers approved and submitted for consideration to the State Duma a bill on increasing the mineral extraction tax (MET) by 3.5 times for metallurgists and fertilizer producers from January 1, 2021.

According to Anton Siluanov, as a result, next year the Russian budget will receive an additional 56 billion rubles.

It should be noted that today, in all countries of the world, companies that extract minerals pay to the state mining rent in the form of royalties tied to the price of resources.

Meanwhile, for Russian enterprises mining solid minerals, including ore, chemical raw materials, all this time the tax legislation remained super mild, experts say.

Mining rent is now paid on the basis of the cost of production costs, which is several times less than the market price for such natural resources.

So, for example, the effective rate of MET in Russia for oil is 40-50% of the revenue, for gas - 15%, precious stones - 8%, for precious metals - about 6%, and for solid minerals - only 0.5 -0.6%.

For comparison: in a number of other states, the corresponding indicator varies from 2 to 6%.

“Now the situation is very difficult for the budget.

Therefore, the government increases the tax burden where possible.

One cannot but agree with this position.

Because a significant part of the taxes that will come from mineral fertilizers, metallurgy, and oil workers will go back to people.

That is, the funds received will be used for bonus and social programs, ”explained Georgy Ostapkovich, director of the Center for Market Research at the Institute for Statistical Studies and Economics of Knowledge, NRU HSE, in an interview with RT.

Extra benefits

In addition, from January 1, 2021, the authorities plan to abolish the mineral extraction tax benefits for depleted fields.

According to Anton Siluanov, the initiative will bring an additional 260 billion rubles to the budget next year.

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• © Ilya Pitalev

According to experts, today the taxation system for the oil industry in Russia consists of half of benefits.

Against this background, in some cases, companies may not pay taxes at all for many years.

Although the Ministry of Finance has made repeated attempts to convert the system to income-added tax (AIT), the old system still persists, experts emphasize.

Meanwhile, some of the benefits provided are already outdated.

In particular, we are talking about the so-called depletion rate.

Initially, this privilege was introduced for old depleted fields, since production at them is much more costly than at fields with large residual reserves.

However, the coefficient was introduced back in 2007, since then the parameters for its calculation have not been updated, and at the moment they do not lead to stimulation of production, but to super-profits for oil companies.

The authorities also propose to change the parameters of the income-added tax (AIT).

Initially, NDD was supposed to replace the old system, but so far it has been introduced as an experimental regime for pilot fields.

Nevertheless, the Ministry of Finance found that the parameters skewed in favor of the oil industry - as a result, the budget received less than 200 billion rubles in 2019 and 2020.

Now the regime is being adjusted by adjusting one of the parameters - this will bring the budget an additional 97.3 billion rubles in 2021 alone.

“Expanding the tax base.

That is, some profitable or highly profitable deposits and enterprises will be taxed so that this tax goes to the budget.

And then money from the budget would go to education, health care, social assistance, construction.

In other words, the government is trying to stimulate the economy at the expense of taxes, taking money from highly profitable and profitable enterprises, ”explained Georgy Ostapkovich.

At the same time, the authorities propose to increase the excise tax on tobacco products by 20%.

According to the current version of the Tax Code, in 2021 excise rates on tobacco products should increase by 4% - up to 2,045 rubles, and the excise rate on electronic cigarettes and vapes - up to 52 rubles per piece.

The rates of excise taxes proposed by the Ministry of Finance will be 2359 and 60 rubles, respectively. 

According to Anton Siluanov, the initiative will attract an additional 70 billion rubles.

The minister noted that "it will cost about 20 rubles per pack, if you look at the cost of cigarettes in the amount of about 120 rubles."

New conditions

In addition, the revision of agreements on avoidance of double taxation with a number of countries should also bring additional revenues to the budget.

Back in late March, Russian President Vladimir Putin ordered an increase in the tax on the transfer of dividends and interest to foreign accounts to 15% from 2021.

“All payments of income in the form of interest and dividends that go from Russia abroad to offshore jurisdictions should be taxed adequately.

Now two-thirds of these funds, and in fact these are the incomes of specific individuals, as a result of various so-called optimization schemes are subject to a tax rate of only 2%, "Putin said.

The Russian leader noted that such a step would require adjustments to agreements on the avoidance of double taxation with a number of countries.

If states refuse to accept the new conditions, Russia will unilaterally withdraw from such agreements.

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• © Mikhail Klimentiev

As the chief analyst of TeleTrade, Mark Goikhman, explained to RT, the agreements were originally supposed to be an incentive to attract foreign investment to Russia.

So, if, for example, a Cypriot company receives income from a legal entity in Russia, then taxes are paid not in both countries, but only once, and at preferential rates adopted in the republic.

“However, such preferential taxation allows Russian business to significantly save on payments to the treasury.

Companies often open or buy a related company on the island, which becomes a formal shareholder or lender of a legal entity in Russia.

It pays dividends or interest on loans to Cyprus.

At the same time, dividends are taxed from 5 to 10%, and interest on loans - 0%.

This is more than two times less than the corresponding rate in Russia (13-15%), ”explained Goikhman.

According to the Ministry of Finance, during the term of the agreement with Cyprus, many Russian companies have used its jurisdiction.

So, in 2018, 1.4 trillion rubles were withdrawn to the republic, and in 2019 - more than 1.9 trillion.

As a result, the Russian Ministry of Finance proposed to colleagues in Cyprus and in a number of other jurisdictions to raise rates to 15% on both dividends and interest.

• Russian Foreign Minister Sergei Lavrov (left) and Cyprus Foreign Minister Nikos Christodoulidis at a news conference following the talks

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• © Press Service of the Russian Foreign Ministry

On September 8, Russia and Cyprus signed a protocol on amendments to the agreement on the avoidance of double taxation.

Now the tax levied on dividends and interest should not exceed 15% of the total amount of dividends.

At the same time, in some cases, a preferential percentage is provided (up to 5%) if the person entitled to dividends is a foreign insurance company or pension fund, as well as a local authority or a central bank.

Starting in 2021, additional income to the Russian budget from taxation of payments to Cyprus will have to amount to about 130-150 billion rubles annually.

This was previously stated by the State Secretary - Deputy Minister of Finance Alexei Sazanov.

Note that in the near future a similar protocol is planned to be signed with Malta.

At the same time, the equalization of tax rates may push entrepreneurs to re-register in the so-called Russian offshores.

We are talking about special administrative regions with preferential taxation on the Russian islands in Primorye and Oktyabrsky in the Kaliningrad region.

As Sazanov noted earlier, in the near future the Russian authorities plan to increase the attractiveness of both jurisdictions for business. 

“It will be more profitable to transfer everything back to Russia.

We are now going to improve the legislation in part of the administrative regions in order to make these jurisdictions more attractive for the transfer of holding structures back to Russia, ”Sazanov noted.

Income rate

One of the key ones from the point of view of replenishing the budget is the bill on increasing from January 1, 2021 the personal income tax rate (PIT) from 13 to 15% for citizens who earn more than 5 million rubles a year.

The corresponding initiative was announced at the end of June by Russian President Vladimir Putin, and today the document has already been submitted for consideration to the State Duma.

As a result, from 2021 to 2023, the country's budget is expected to receive an additional 190 billion rubles.

This money will be used to treat children with serious illnesses.

“I propose to paint the funds, as experts say, to protect them from any other use and to target them for the treatment of children with serious rare diseases: for the purchase of expensive drugs, equipment and rehabilitation equipment, for high-tech operations,” Putin said.

According to experts, the president's initiative means abandoning a flat taxation scale.

The corresponding system was introduced in Russia back in 2001 - since then, all citizens of the country have been paying personal income tax at a uniform rate of 13%.

“The proposal to raise the tax rate from 13 to 15% for citizens with incomes over 5 million rubles a year is a step towards the introduction of a progressive taxation scale in Russia.

This initiative will, over time, reduce tax rates for low-income citizens.

And of course, such an approach is considered around the world to be fairer in the distribution of income than a flat scale of taxation, "Pavel Sigal, vice president of the all-Russian public organization for small and medium-sized businesses" Support of Russia, "told RT.