Austin, in your article you posted:
“We also consider a second option,” the finance minister stressed, “possibilities for increasing revenues. First, increase in taxes and duties, including by means of better administration. We have the value-added tax (VAT) collection rate of 94%, we set the task to increase it to 98% within the next three years. Second, it has been proposed to equalise the taxation of revenues from dividends and wages.”
“Increasing the tax on dividends, by the way, is not our idea,” the finance minister said. “It has been borrowed from the MPs who talk of justice in taxation: why public sector employees, low-paid citizens pay a 13-percent income tax, and businessmen who get the main revenue from investment instruments - just 9%? Some other tax innovations that make the budget system more balanced have also been proposed.”
this caught my attention. VAT Tax is what exactly? At that, income tax is 13% for citizens and 9% for business? That is very low. Lower than Canada. I am paying around 22% income tax, and we have the same socialized system as Russians do (even if ours is more efficient and modern). Federal income tax for business is around 15%, and that is not including the provincial tax.
So it is true, Russians pay less in taxes. Which is a major killer for federal budget. Add to the fact that in Canada, most to everyone who owns a home is paying a morgage of average about $200,000 - $300,000 (average home where I am is about $400,000). So in the end, we are getting screwed here in Canada.
Then there is this:
“We have developed high expenditure growth rate, first of all by means of increasing wages to the public sector employees and defence spending that increases annually,” Siluanov said. “A considerable amount of funds is spent on ensuring the Pension Fund balance. The pension reform is not over, the volume of subsidies and grants-in-aid of the RF Pension Fund in 2015 will be some three trillion roubles with the total federal budget volume of 15 trillion roubles.”
How does the pension fund work in Russia? Is it that whatever the person puts into the pension, a certain amount is given to the individual? I know where I am at, we put money into our CPP through our wages every bi-weekly and a certain amount is given to the individuals in terms of tax breaks. At least that is how I understand it (I could be wrong). Is this different in Russia? It is good they are not dipping into the pensions cause in US, the government is dipping into the 401K in order to deal with their economic issues. Them threatening Russia is just going to spiral the whole thing out of control.
“All countries that face budget difficulties take one and the same steps: cut the expenditures, increase the number of revenue sources, including at the expense of property sale,” the minister said.
So does this mean that they are going to further push the privatization of state controlled companies? In doing so, the government can get extra revenue, while the companies themselves will start paying regular taxes without incentives unless it is in a SEZ (Special Economic Zone). This could increase revenues (as long as the company becomes competitive).
Edit: Back to VAT
It seems VAT is relatively high. Maybe if they lowered it, for domestic consumption goods but increase it on imported goods, it could create a massive demand for domestic goods from the population. Add in the fact that having a lower VAT will increase consumption, which will help stimulate the economy. I find VAT to be good and bad, but a not very high VAT would benefit more than a higher VAT, because that is what stunts consumption. And consumers are the biggest part of Russian economy. But import VAT is quite low. Why is that? Is this a result from the 90's and that has not been looked at?
What I can gather from all this, is this is why I can see why Russia's economy, even with all these massive new deals, is not growing but rather is stagnating and thus they need to cut spending. Their tax system is abysmal and as well, business laws are somewhat none existent. They could fix a massive amount of Russia's economy by simplifying tax codes and increasing import taxes while decreasing domestic consumer tax. All the while, get that pension fund sorted out since it sounds like it is a major reason why loss of funds.