NIKOLAY MILOGOLOV AND VLADIMIR GROMOV: TAX EVASION IN RUSSIA: WAYS TO SOLVE THE PROBLEM
Development of an effective tax system is a critical prerequisite of economic growth, improvement of investment and business climate in Russia.
This system should be capable not only to provide fair distribution of tax burden among tax payers but also develop such a level of budget which allows the state to effectively solve current and long term tasks of economic policy.
Its main obstacle is tax evasion. According to International Monetary Fund, share of gray economy in Russia constituted 33.7% in 2015 while the average number of this index among 158 countries of the world was 27.8%. Association of Chartered Certified Accountants (ACCA) highlighted share exceeding 39% (Rb 33.6 trillion) in 2016. Although Rosstat estimate the same index well below, i.e. 15-15% of the GDP, it has to be recognized that this issue is still burning.
Despite the policy of decriminalization of tax crime held out in Russia, high numbers of these crimes and amount of taxes payable indicate objective reasons instigating people to evade their tax duties in Russia. They may include: inadequacy of tax reforms and high fiscal load as well as consequences of financial economic crisis and impact of a rather difficult economic situation. At the same time, there is a certain number of tax payers in any country who choose tax evasion as their permanent major model of business activity and income regardless favorable tax environment and business climate.
That is why, issue of tax evasion highlight the necessity to take additional measures contributing to reduction of its scale and at the same time assisting the upgrade of tax culture in Russia. Practical achievement of this goal suggest the following: 1) consolidation of tax conditions striving to curtail abuses wherever it is really required; 2) provision of motivation for business to come out of “shadow”, i.e. prerequisites for free will payment of taxes.
Taking into consideration the first aim, it will be reasonable to establish suspension on growth of the profit marginal limits in order to implement simplified tax system (STS) followed by a further estimation of chances to reduce them in future. Extremely high access threshold to easy tax terms ultimately improve tax conditions for operating enterprises having substantial profit turnover but do not regulate the impact on emerging small enterprises while losses resulted from business split-up as of tax scheme will reduce, i.e. opportunities for tax evasion expand. A follow-up modification of the STS limitations with participation of tax payers in the capital of other economic entity, strengthening of UTII limitations according to level of incomes for the remaining period of regime, identification and correction of legislative “gaps” containing risks of evasion including, inter alia, regulation of electronic trade taxation procedure, could be considered as promising ways to combat tax evasion. Implementation of the second group of measures include development of such condition of business activity that will contribute to business legalization and expansion of SME share in the Russian economy. This does not only concern the burden related to tax payment but also the administrative load on business making its reduction a priority task for the government. It is solved today based on improvement of technique of tax administration and development of mechanisms of cooperation of tax payers and tax bodies taking into consideration out-of-court settlement and joint implementation of requirements of tax legislation, i.e. tax monitoring. However, in addition to proper tax climate, effective antimonopoly policy, free access to domestic (local) markets and sources of financing, support of export potential of enterprises, improvement of the households tax literacy are also important in this case.
One of the key prerequisites of effective fight against tax evasion is the optimum combination of most favored tax policy with improvement of efficacy of tax control. Taking this position into consideration, attention to the interests of conscientious tax payers with the highest administrative burden to be put on those who evade paying taxes rather than those who are prepared to pay them, should be in the focus of tax policy. Herewith, unique and agreed strategy on measures of counteraction and severity of tax infringements, action against tax evasion under implementation of OECD recommendations shall be developed in order to rank risks of non-payment or incomplete payment of taxes and use of respective measures of responsibility.
It has to be taken into consideration that there are prerequisites for reduction of the scale of tax evasion. According to results of sociological survey, population of Russia apt to disapprove tax evasion. About 70% of respondents take this position according to survey.
Nikolay Milogolov, Candidate of Economic Sciences, Head of Tax Policy Research Department, Senior Researcher of the Financial Research Institute of the Ministry of Finance of the Russian Federation (FRI)
Its main obstacle is tax evasion. According to International Monetary Fund, share of gray economy in Russia constituted 33.7% in 2015 while the average number of this index among 158 countries of the world was 27.8%. Association of Chartered Certified Accountants (ACCA) highlighted share exceeding 39% (Rb 33.6 trillion) in 2016. Although Rosstat estimate the same index well below, i.e. 15-15% of the GDP, it has to be recognized that this issue is still burning.
Despite the policy of decriminalization of tax crime held out in Russia, high numbers of these crimes and amount of taxes payable indicate objective reasons instigating people to evade their tax duties in Russia. They may include: inadequacy of tax reforms and high fiscal load as well as consequences of financial economic crisis and impact of a rather difficult economic situation. At the same time, there is a certain number of tax payers in any country who choose tax evasion as their permanent major model of business activity and income regardless favorable tax environment and business climate.
That is why, issue of tax evasion highlight the necessity to take additional measures contributing to reduction of its scale and at the same time assisting the upgrade of tax culture in Russia. Practical achievement of this goal suggest the following: 1) consolidation of tax conditions striving to curtail abuses wherever it is really required; 2) provision of motivation for business to come out of “shadow”, i.e. prerequisites for free will payment of taxes.
Taking into consideration the first aim, it will be reasonable to establish suspension on growth of the profit marginal limits in order to implement simplified tax system (STS) followed by a further estimation of chances to reduce them in future. Extremely high access threshold to easy tax terms ultimately improve tax conditions for operating enterprises having substantial profit turnover but do not regulate the impact on emerging small enterprises while losses resulted from business split-up as of tax scheme will reduce, i.e. opportunities for tax evasion expand. A follow-up modification of the STS limitations with participation of tax payers in the capital of other economic entity, strengthening of UTII limitations according to level of incomes for the remaining period of regime, identification and correction of legislative “gaps” containing risks of evasion including, inter alia, regulation of electronic trade taxation procedure, could be considered as promising ways to combat tax evasion. Implementation of the second group of measures include development of such condition of business activity that will contribute to business legalization and expansion of SME share in the Russian economy. This does not only concern the burden related to tax payment but also the administrative load on business making its reduction a priority task for the government. It is solved today based on improvement of technique of tax administration and development of mechanisms of cooperation of tax payers and tax bodies taking into consideration out-of-court settlement and joint implementation of requirements of tax legislation, i.e. tax monitoring. However, in addition to proper tax climate, effective antimonopoly policy, free access to domestic (local) markets and sources of financing, support of export potential of enterprises, improvement of the households tax literacy are also important in this case.
One of the key prerequisites of effective fight against tax evasion is the optimum combination of most favored tax policy with improvement of efficacy of tax control. Taking this position into consideration, attention to the interests of conscientious tax payers with the highest administrative burden to be put on those who evade paying taxes rather than those who are prepared to pay them, should be in the focus of tax policy. Herewith, unique and agreed strategy on measures of counteraction and severity of tax infringements, action against tax evasion under implementation of OECD recommendations shall be developed in order to rank risks of non-payment or incomplete payment of taxes and use of respective measures of responsibility.
It has to be taken into consideration that there are prerequisites for reduction of the scale of tax evasion. According to results of sociological survey, population of Russia apt to disapprove tax evasion. About 70% of respondents take this position according to survey.
Nikolay Milogolov, Candidate of Economic Sciences, Head of Tax Policy Research Department, Senior Researcher of the Financial Research Institute of the Ministry of Finance of the Russian Federation (FRI)