The flat scale of the individual income tax are Russia's competitive advantages

At the meeting with heads of departments of constitutional and legal disciplines of higher educational establishments of the Russian Federation, Vladimir Putin, President of the Russian Federation said for the first time that progressive scale of the individual income tax was "more just" as compared to the single tax rate of 13%.

So, the President confirmed the plans voiced earlier by Igor Shuvalov, First Vice Premier of the Russian Federation at the St. Petersburg International Economic Forum to change the rate of the individual income tax from 2018.

The progressive scale of the income tax existed for a long time in Russia before 2001. Introduction of the flat scale of the tax not only contributed to the exit of individuals' income from the shadow, thus increasing tax revenues, but also made the tax administration in respect of that tax much simpler. Actually, the flat scale is a compromise permitting people with high income to go out of the shadow.


In a sense, the flat scale is advantageous to people with several jobs. Earlier they had to keep track of their incomes at each job to see to it that their incomes did not exceed a certain level at which a higher tax was charged. Also, there were instances when a worker's pay was increased, but the worker received on hands a smaller amount due to the fact that a higher rate on income was applied.


On the other hand, a low rate and a flat scale of the individual income tax are Russia's competitive advantages, that is, the index of stability of doing business conditions. Interestingly, Russia's example as regards introduction of a flat tax scale was followed by other countries, primarily, Slovakia, the Czech Republic, Estonia, Kazakhstan and other. However, as compared to other member-states of the Customs Union the rate of the individual income tax in Russia is higher than in Belarus (12%) and Kazakhstan (the mere 10%). So, Russia's rate of 13% can hardly be called the low one.


Consequently, it is worthwhile to preserve the flat scale of the individual income tax. It is to be noted that as was stated in the Conceptual Proposals on the Tax Policy prepared by researchers of the Gaidar Institute for Economic Policy within the frameworks of development of Strategy 2020 a reasonable measure is to increase the minimum untaxed amount to the level which is comparable to the minimum monthly wage. Reduction of the revenues as a result of increase in the minimum untaxed amount to the level comparable with the minimum monthly wage is estimated at 0.3% of GDP (in case of increase to a half of the minimum monthly wage, reduction of revenues will amount to 0.15% of GDP).


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