It is Worthwhile to Preserve the Flat Individual Income Tax Schedule

Within the frameworks of the St. Petersburg International Economic Forum, Igor Shuvalov, First Deputy Chairman of the Government of the Russian Federation said that it would be expedient to introduce a progressive tax on individual income from 2018.
It is to be noted that the deadline for introduction of the progressive tax is determined by him with regard to completion of the present political cycle within which frameworks the tax system is to be stable, Igor Shuvalov says. At the meeting with representatives of the Civil 201 President Vladimir Putin noted that discussion of the flat individual income tax schedule is possible and underlined positive effects produced by introduction of the flat tax schedule: individual income left the shadow economy and tax revenues increased considerably.

Introduction in 2001 of a flat individual income tax schedule not only prompted individual income to leave the shadow economy and contributed to growth in tax revenues, but also made tax administration as regards the individual income tax much simpler. Actually, a flat tax schedule is a compromise which permits high-income people to come out of the shadow.


On the other side, the low rate and flat income tax schedule are Russia's concrete advantages, that is, a parameter of stability in doing business. Interestingly, other countries, primarily, Slovakia, the Czech Republic, Estonia, Kazakhstan and other followed the Russian example and introduced a flat individual tax schedule.


Consequently, it is expedient to preserve the flat individual income tax schedule. It is to be noted that as was stated in the Conceptual Proposals as Regards the Tax Policy developed by the Gaidar Institute for Economic Policy within the frameworks of development of Strategy 20202 it would be reasonable to increase a personal exemption (a standard tax credit) to the level comparable to the minimum monthly wage. Reduction in tax revenues as a result of increase in the personal exemption to the level comparable to the minimum monthly wage is estimated at 0.3% of GDP (consequently, an increase to 50% of the minimum monthly wage is estimated at 0.15% of GDP).


It is to be noted that growth in a tax burden on labor and capital runs counter to the worldwide trend: reduction of the tax burden on labor and capital with growth in the tax burden on consumption.


Е.Е. Velikova, Senior Researcher of the Tax System Development Department 


1 The Civil 20 is an international venue for dialogue between representatives of civil society entities, politicians and experts. Guidelines developed by the Civil 20 are submitted to G20 leaders.