The question of controlling citizens’ expenditures is premature

Amidst budgetary constraints and the need to find new sources of income, Russian government is developing mechanisms to reduce the shadow economy and control officials’ large expenditures as well as expenditures of employees of state companies. However, as finance minister Anton Siluanov stated, they are not talking about controlling all citizens’ expenditures.

In July 2016, the capital amnesty which had begun in June last year came to an end. The tax amnesty meant voluntary declaration of income, on the one hand, and guarantees of the lack of tax implications  for “amnesty” declarants who are ready to transfer their foreign assets into Russia, on the other hand. However, the capital amnesty did not meet officials’ expectations, because there were too few declarations filed, deputy finance minister Sergey Shatalov said at the end of last year. The reason for the capital amnesty being unpopular is the lack of legal  guarantees in exchange for returning funds to Russia. Perhaps, the Russian government had to offer taxpayers a little more. As a result, the goal of winning the trust has not been achieved.

Therefore, the emergence of the expenditure control issue on the Government’s agenda was expected and corresponds to common international practice. However, it could be possible to solve the problem of low tax collection rate by lowering insurance contribution to the wage fund, thereby adding to the budget and the Russian Pension Fund revenues as many employers could step out of the shade. Russia already has successful experience of this kind.

However, expenditure control in itself requires that all citizens who have more than one job or 2–3 sources of income submit tax declarations annually. Currently this is not required.

In addition, expenditure control is directly related to the correctness of property assessment stated in the sale and purchase agreement. This is linked to another problem, which is cadastral valuation quality: the real estate’s cadastral value should not be higher than its market value.

Cadastral valuation methodology traditionally avoids the question of quality control, and the legislation on cadastral valuation does not directly state that it should not exceed the market value. Assessment of movable property for tax purposes is not in practice . The same can be said about property acquisition outside the country.

In other words, solving the question of controlling all citizens’ expenditure fully and by law is only possible through creating a whole set of institutions, elaborating on a system of powers, rights and obligations, and maybe even making amendments to the Constitution, which can take quite a lot of time.

Natalya Kornienko, head of the Tax System Development Department