On the Possible Introduction of the Tax on Savings Interest

On 23 April, 2017, in a conversation with journalists at the Krasnoyarsk Economic Forum, Ilya Trunin, Deputy Finance Minister of the Russian Federation, mentioned that personal incomes fr om bank deposits could be taxed. That caused a stormy public reaction.

Despite the fact that the ministry later assured citizens through its social network accounts on Facebook and Twitter that taxing individual deposits was not expected in the near future, experts agree that such changes can not be ruled out in the medium term.

The idea of taxing individual deposits is not original, and studying the models of the similar tax in other countries could be used when it is introduced in the Russian Federation.

United Kingdom
Many nationals of the United Kingdom who have bank deposits are exempt from the obligation to pay the tax on the related income. They can use:
• personal allowance – for most UK nationals, the first 11,500 GBP of income are not taxed, regardless of the source of income;
• starting rate for savings – if the “other” income of the taxpayer is less than 16,500 GBP, the taxpayer may receive an additional privilege in the form of not taxing the income from deposits of up to 5,000 GBP. In this case, every pound of “other” income reduces this discount by one pound;
• personal savings allowance – depending on the taxpayer’s income, it can exempt the taxpayer from up to 1,000 GBP of the tax on the income from deposits.

The deposits themselves are not taxed.

In Cyprus, the introduction of the tax on deposits was actively discussed in 2013. The introduction of such tax – 6.75% for deposits ranging from 20 to 100 thousand euros and 9.9% for deposits of more than 100 thousand euros – was a prerequisite for granting Cyprus financial assistance in the amount of 10 billion euros from the Eurogroup. Nevertheless, when the bill was considered in the Parliament, no parliamentarian voted for it, and the tax was eventually not introduced. The main reason for it was the shock reaction of the population who began to urgently withdraw money from their deposits.

In Spain, introducing the tax on deposits was discussed in 2014, soon after the similar discussion in Cyprus. The Spanish government promised that the tax rate would be slightly different from 0% and that the tax would be oriented on those regions of Spain wh ere there are significant problems with tax collection.

As for savings income, the first 6 thousand euros are taxed at the rate of 19%; if the savings income is 9 to 50 thousand euros, the tax rate would be 21%; if the income is more than 50 thousand euros, it would be 23%.

There are a lot of options for taxing deposits and income from deposits, and in case a similar tax is introduced in Russia, a thorough study of the best world practices, as well as factors influencing the choice of this or that taxation model in a certain country, is necessary.

Natalia Pushkareva – Researcher at the Tax System Development Department