A comparative analysis of the results of tax reform in countries with transitional economies, and the development of proposals concerning Russian tax policy (2004)

In 2004, the Institute for the Economy in Transition in collaboration with the Bureau of Economic Analysis participated in implementation of the project “Comparative analysis of the results of tax reforms in the countries in transition and the development of proposals on some issues of tax policy in the Russian Federation”.

The objective of the project is making a comparative analysis of the legislation of Eastern Europe and CIS countries, regulating the issues of tax reform, analysis of macroeconomic conditions of carrying out tax reforms, and comparison of the final results of implementation of tax reforms.

In the course of the project implementation activities were made in the following areas of research.

1. Analysis of tax legislation of the countries in transition.

During analysis, key problems of tax legislation of the countries in transition, as well as major development trends were identified, and also general and specific provisions in the tax legislation of Eastern Europe and CIS countries. The research was made with the use of concrete taxes. Individually, there were considered the reforming trends concerning VAT, corporate profit tax, personal income tax, social fund contributions, taxes in industries engaged in extraction of mineral resources, corporate property taxes, environmental taxes, taxation on foreign trade, and also trends in the field of tax administration. As the final result, perspectives were denoted of improving the Russian tax legislation proceeding from experience of some of the countries of CIS and Eastern Europe.

2.  Studies on regularities of forming tax systems in transition economies.

An analysis is started from consideration of the development trends of tax systems in the developed economies in the long run. Special attention is given during the analysis to factors that have an effect on the tax burden in different time intervals. Then, adaptability of regularities (identified for developed countries) is considered to post-socialist economies, as well as some additional regularities of forming tax systems are analyzed in transition economies.

3. Analysis of international experience in organization of tax remissions and exemptions.

A range of questions was discussed concerning tax benefits as an instrument of government’s socio-economic policy: their role in stimulation of the economic growth, implications of their use, the choice of instruments of socio-economic policy. Also considered were main problems and international experience in estimating the effect of tax benefits and exemptions on the volume of tax revenues.

4. Estimating and accounting tax benefits.

ecommendations had been made on integration of the losses of budget system from tax benefits and exemptions for the Russian budgetary statistics. To solve this task, stocktaking and classification of tax benefits by the type of tax had been carried out in Russia. Then, the existing methods of estimating the effect of tax benefits on tax revenues in our country had been generalized: special attention was given to reviewing the statistical information of the organs of government, concerning the volumes of benefits and exemptions by the type of tax in Russia. A mid-term forecast of expenditures had been made with account of the results of the forecast of tax revenues. To prepare recommendations on the integration of the data of budget losses because of granting benefits and exemptions for the Russian budgetary statistics an analysis had been made of foreign practice of governmental accounting in tax expenditures. Based on conclusions made as a result of the research, definitions had been formulated and principles established of benefits’ classification for major types of taxes in Russia, as well as the list of tax expenditures identified.

5. Quantitative estimation of losses of the budget system from granting of tax benefits and exemptions.

Within the frame of this research direct losses of the budget had been estimated from granting of such exemptions on basic taxes, and also their distribution in the regions and districts. We note “in parentheses” that we did not make their quantitative estimation, but illustrated some negative indirect effects of tax benefits and exemptions and outlined possible ways of their estimation.

The result of project activities was the development of concepts for changing the tax legislation based on the results of the research, and also drafts regulations.