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Tax Reform and Market Development
Chernik D.G. doctor of economic sciences, professor, academic of the Russian Academy of Natural Sciences, first rank counselor of state ãof the taxation service, deputy minister of taxes and dues of the Russian federation
The partial introduction of the Tax code of Russian Federation has marked a new stage of tax reform. After the introduction of a part of the first Tax code some modifications of a series of taxes were introduced, namely firms and organizations profit tax, income tax, personal property tax, taxes forming road funds, some customs duties. In connection with the introduction of sales tax in the majority of locales a range of local taxes were eliminated. Since January 1, 2001 four chapters of a part two of Tax code come into effect. Significant modifications happen in the main indirect taxes: value-added tax and excises. Income tax will be converted to personal income tax. Social tax on the basis of insurance payings in state extra-budgetary social funds is introduced. Alongside with this Federal act of August 5, 2000 ¹118-FL "On introduction of a part two of Tax code of Russian Federation and modification in some legislative acts of Russian Federation on the taxes" serious improvements are introduced into the firms profit tax and road users tax. We can add, that a single tax on imputed income on definite aspects of activity has been introduced in the subjects of the Federation practically since 1999.
The scales of modifications speak about a new coil of tax reform, which will render the large effect on development of the market in all its aspects. What substantive provisions of the reform should render the greatest effect on the economy? First of all it might be possible to name the following. Stabilization of a tax system. During 1992-1999 years modifications and supplements introduced in tax laws, even if they had positive character, were often destabilizing the work of managing subjects. They were introduced, frequently, in the middle of a calendar year, provoking critics of the taxpayers. Article 5 of Tax code of Russian Federation regulating the acts of the local law on taxes is in force since 2000. They become effective not earlier than on expiration of one month from the date of their official publication and not earlier the first day of a next tax phase of the appropriate tax. The laws introducing taxes and duties, become effective not earlier January 1 of the year following the year of their adoption, but not earlier than one month from the date of their official publication.
The acts of the local law establishing taxes and duties, rising tax rates burdening the liability for tax violations, establishing new duties or otherwise aggravating the life of taxpayers do not have the retroactive effect. The acts removing or extenuating the liability for tax violations, or establishing additional warranties of protection of the rights of taxpayers, have the retroactive effect. The acts abrogating taxes and duties, reducing their rates, removing duties of the taxpayers or otherwise improving their situation, can have the retroactive effect, if it is directly provided. Henceforth article 5 provides a possibility to the businessmen to work during tax phase, being aware of "rules of the game" with the state. The tax code has defined that the list of regional and local taxes will have a closed character, that is the introduction of taxes or duties, which were not included in the list, is not supposed. Let's remind, that the order, acting in 1994 -1996 permitting to representative bodies of the subjects of Federation and local authorities to establish the taxes besides articles 20 and 21 of the Law of Russian Federation "On bases of a tax system in Russian Federation", has resulted in the fact that the total number of aspects of taxes in the country has exceeded 1,5 hundred. Completely exotic taxes which are not present anywhere else in the world have appeared. At engineering of the draft of Tax code there was an active discussion on a problem, whether there the lists of regional and local taxes would be open or closed. The discussion ended in a most reasonable, to our mind, way with keeping to interests of the taxpayers and development of the market. The tax code provides cutting the aspects of taxes, primarily at the expense of the local taxes and duties. It started, as it was marked above, with introduction of the sales tax and will be completed at definitive adoption of a part two of Tax code. A classification of tax offences and differentiation of financial liability is extremely important.
Till recently an intentional hiding of incomes with the purpose of tax evasion and random accounting mistake were punished practically equally. The presumption of innocence is introduced into the revenue laws. All doubts, controversies and vagueness of acts of the local law should be interpreted for the benefit of a taxpayer. The guilt of a taxpayer should be proved and the burden of the evidence is assigned to the tax organs. Rights and duties of taxpayers and tax bodies, including mutual, are defined more precisely, than earlier. The tax reform transfers main interest of the taxation from direct towards the indirect taxes that is from the producer towards a customer of a product, operations or services. It results in lowering of the main direct taxes, first of all of firms profit tax. However legislative acts are sometimes controversial here as well. So, Law of Russian Federation of March 31, 1999 ¹62-FL "On modification and supplements in the Law of Russian Federation "On the firms profit tax" the rate of the tax falls from 35 % to 30 %. We speak about the merger rate in view of federal and regional parts of the tax. A draft of appropriate article of a part two of Tax code mentions the same tax rate of 30 %. Nevertheless, the Law ¹118-FL contains the provision that the firms profit tax at the rates established by representative bodies of local home rule at a rate of not higher then 5 % is inducted in the local budgets. It means a return to the margin tax rate of 35 %. This provision can come into effect since January 1, 2001 provided that the local authorities pass appropriate laws (and will publish them in the official publications) till November 30, 2000. It will act before the adoption of a part two of Tax code or its appropriate chapter.
As to other main direct tax: personal income tax, it is certainly extenuated and will be decreasing further. Speaking about the taxation of citizens, it is necessary to mark that the local bodies have had an opportunity to differentiate the private property tax rate depending on inventory cost of asset from 0,1 % up to 2,0 %. The higher rate of the private property tax rate now corresponds to the margin rate of legal entity asset tax. The possibilities for transition to the regional real estate tax in the future are created. In a whole a present stage of the tax reform is directed on a further development of market relations in country, creation of more favorable conditions for the development business activity and economy as a whole. Let's discuss some aspects. Chapters 23 and 24 of Tax code of Russian Federation provoked a vivid discussion. Usually they are criticized separately. But for the objective analysis they need to be considered only as a uniform complex of measures. This complex pursues a completely precise purpose, namely, to liberate wage funds of firms and organizations from an excessive tax burden. It is for sure excessive. 39,5 % of wage fund go to state social extra-budgetary funds. To rise the salary of workers and executives, an employer should find money resources almost 1,4 times more, than it is necessary for simple rise of salary. It is not surprising, that it grows rather slowly, and its considerable part has a hidden shape.
Let's look at foreign experience. The deductions in funds of social insurance have an important value in any developed country. USA, for example, hold the second place in the incomes of the federal budget after personal income tax. An amount of the contribution is defined annually at calculation of the budget. The contribution is divided in equal proportions between an employer and a hired worker. Total rate varies at a level of 15-16 % of taxed wage fund in ninetieth years. Not all the fund is subject to taxation, but only first 50,1 thousand dollars per year per a company's employee. In France only the employers pay a social tax. It is deposited on a progressive scale at a rate from 4,5 % to 13,6 %. In Germany social deductions make 6,8 % of the wage fund. As in USA, the deductions are bisected between an employer and a hired worker. Sweden holds the special place. Social deductions there are comparable with ours and also constitute 38-39 %. But thus the level of social protection of the citizens of this country is rather high. So, the analysis of economic situation and experience of foreign countries inevitably results in an idea about the necessity of a significant diminution of tax pressure on the wage funds. This is the only way to achieve a real rise of wage, its certification and extension at the expense of it of the base of the income and social taxes.
At the same time the sharp lowering of insurance payings, for example by equalizing them with a European level, is impossible to do at once. It is impossible to admit lowering of a profitable part of the social funds budgets. It is possible to save and to increase them at a diminution of the tax rate at the expense of raise of the amount of tax collecting and lowering of expenses on it. These two purposes are pursued by the introduction of a social tax with the transmission of functions of control over its collecting to the tax bodies. As a first step it was possible to reduce the rate of deductions almost on 4 points to 35,6 % and to introduce a recourse taxation. Income tax is a different matter. Here it is possible to pay certain costs for the sake of a general purpose - to release from a tax load the wage funds. It resulted in a solution concerning the uniform tax rate, refusal from the total revenue assessment and ordering of the fiscal incentives. Taking into account these modifications, it is possible to say, that private income tax it not a simple renaming of an income tax. The adoption of the law on private income tax have provoked an active critic generated by several myths, the origin of which is unknown.
Myth ¹1. The law aggravates financial condition of the underpaid people. They paid the tax at a rate of 12 %, and will pay at a rate of 13 %.
Myth ¹2. There is a leveling taxation system, at which everyone pays equally.
Myth ¹3. Time of declaration campaigns has ended, and consequently, the data bank about the incomes of the population, accrued during the ninetieth years by the tax service will be lost.
Myth ¹4. By virtue of the above-stated provisions the tax is introduced on a short period for the legalization of incomes and soon will be again substituted by the progressive tax, which is taking into account the aggregate revenue of a person.
Let's try to dispel these myths. Let's begin with the first. The situation of underpaid layers of the population will not be aggravated at all. Those who pay today the tax at a rate 12 %, pay 1 % in a pension fund. To sum it up - the same 13 %. But the tax-free minimum of income is much higher and a system of tax residues is oriented on their support. Concerning a leveling system it is possible to say that it simply does not exist. All earned incomes are taxed at a rate of 13 %, but at proportional assessment as well the one who receives more, pays more. And the investment or passive incomes are still taxed at the rates high enough: 30 % and 35 %.
Declaration campaigns will not only be not completed, but will gain new and besides mass character. Tax residues are a most important problem. They are classified on four aspects: standard, social, property and proportional. Standard tax residues represent a tax-free minimum, the size of which depends on a category of the taxpayers and presence of children. Social tax residues allow to moderate the taxable income by the sums directed by the taxpayer from the personal means for personal tutoring and treatment and tutoring and treatment of members of his family. Property tax residues are residues at sale of asset, owned by the taxpayer on the property laws, and on expenses at construction or purchase of housing. Professional tax residues are stipulated for the businessmen and persons of liberal professions.
From this entire list an employer can grant the taxpayer only standard tax residues. The rest can be realized only by filing the tax declaration in the tax bodies. According the calculations, in 2002 three times more people, than the previous years will come to file the income declarations for the year 2001.
It is possible to say that a new law is introduced on a long enough period of time. The common lowering of tax pressure on the wage fund will gradually make its artificial diminishing economically unprofitable. The extension of a tax base creates the reasons for further lowering of insurance payings. Property taxes are an acute problem in the theory and practice of the taxation. Today tax bodies take into account 2,0 mln legal entities who pay the tax on firms asset; more than 51 mln citizens who pay the personal property tax; 40,6 mln legal entities and individuals who pay the land tax. But the matter is that the stated figures are far from corresponding a true situation in the country. Reasons: a deficient registration of the plants of taxation, a possibility to not register legally almost completed and serviceable building, lack of real cost of buildings for the purposes of taxation, lack of a uniform federal system of bodies of technical registration and technical inventory control. Problems of registration and filing in bodies of technical inventory control of premises and buildings are still acute. A continuous inventory control of them has not been held for many years. For the ninetieth years a set of buildings is raised again, rebuilt and reconstructed, including autocratically. Local authorities without conducting appropriate project expertise frequently issued building licenses. The owners of buildings can eternally declare them incomplete and not to register them in due order. The tax bodies detect several millions buildings not recorded in a bureau of technical inventory control.
Attempts to change the situation are made at a level of the subjects of Federation. They are interested in order in this problem. From three property taxes (to say nothing about the tax on patrimony and donation) two are local: personal property tax and land tax and one is regional: legal entities asset tax. For example, in the Kirov area in 1999 the order of the Governor "On the supplementary measures on executing the Law of Russian Federation "On the personal property taxes" was published and introduced declaration by inhabitants of the area of not registered buildings owned by them. In 2000 at cities and districts administration the commissions on detection of unregistered plants of the real estate are created. On order of commissions the bureaus of technical inventory control value buildings for the purposes of the tax collection using a simplified technique on a gratuitous basis. All the work is conducted together with tax inspections and control Inter-regional Tax Service in the Kirov area. For the present moment more than 110 thousand buildings are extra recorded, evaluated and brought to taxation. The president of republic Bashkortostan has passed in 1998 the Decree "On measures on ensuring of complete reception in the budget of tax on premises and buildings of the citizens". The decree grants to the tax bodies the right to effect their valuation basing on cost of one cubic meter depending on a category of buildings, at lack of inventory cost of the real estate owned by citizens on the property laws. In the same Decree the attempt is made to solve a problem of incomplete construction. For the purposes of taxation it is offered to consider as completed construction premises having walls, roof, windows and doors. For two years in the republic the valuation of 430 thousand buildings, including 300 thousand by bodies BTI and 130 thousand by tax bodies, has been conducted. In July 2000 in Khabarovsk area the Law "On technical registration of plants of the real estate on the territory of Khabarovsk area" was passed.
The law stipulates the registration of plants of the real estate operating or involved in the civil circulation, and creation of the Uniform State enumeration of plants of the real estate located on the territory of area. The administrative liability of the landholders is stipulated for deviation from registration. The positive experience in this direction is present in St.-Petersburg, Leningrad and Kostroma areas, republic Tuva and a series of other subjects of Russian Federation. At the same time these examples testify, that in the country the necessity has ripened to create at a federal level a uniform system of technical registration of plants of the real estate, to conduct a continuous inventory control and to create the Uniform state registry of plants of the real estate in Russia. Further it is necessary, being based on the uniform methodological approach, to define tax base for the calculation of property tax. Inventory cost should be tax base for the present stage. In further at a solution of the indicated problems it will be possible to proceed to rating of the real estate at market cost. The same measures will create in the field of taxation the reasons to substitute three property taxes by the real estate tax. Such variant is stipulated by the Tax code of Russian Federation. In two cities - Novgorod Veliki and Tver the economic experiment on the introduction of real estate tax is conducted.
The offered measures are directed not only on increasing of the tax on asset collecting. They will provide protection of the rights and interests of the owners and holders of buildings and premises, will create legal conditions for further development of the real estate market in the country.
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