Transition to the smart tax system will ensure high level of economic growth

29 november 2018

"Tax policy significantly influences business, economic activity and fiscal position, and is a crucial aspect which, in general, can be systemically important for the economic growth speedup", - Gleb Pokatovich, First Deputy Head of the Analytical Centre, said while opening a meeting of the subgroup on budget and tax policies.

The subgroup was formed for development of the roadmap to ensure sustainable economic growth of the non-resource based sector of the Russian economy. As a measure to ensure high rates of economic growth, experts recommend Russia to implement an alternative tax policy.

"We believe that the current level of automation of the fiscal, tax, budget and treasury systems allows us to achieve a completely new level of management. Thus, the Federal Tax Service has a discussion on terms of reference for development of a new analytical system based on the accounting and tax statements. We’re talking about the opportunity to make a transition to the Smart Tax System", - said Anastasia Alekhnovich, Head of the Expert Center of the Authorized Representative of the President of the Russian Federation for the Protection of the Rights of Entrepreneurs, presenting the concept of the tax system.

According to her, the concept would eliminate a number of factors that hinder the development of the economy. In particular, the high tax burden does not permit to develop a competitive economy. Russia is a member of the group of countries with high tax burden (which is 7 percentage points higher than the world average). Production in Russia is not profitable: total costs of companies are growing while profitability is decreasing. For Q1 and Q2 2017, the number of corporate insolvencies was 3,080 and 3,326, accordingly.  As a result of high fiscal and administrative burden, the share of shadow economy and the offshore sector increase, and today the Russian shadow economy is 39% of GDP. Although the principal portion of taxes is paid by major enterprises, the highest tax burden is borne by small and medium-sized business working in the real economy. One of the major problems of the tax system is the lack of interest of municipalities to promote better conditions for investors.

"It is no secret that the high level of shadow economy and ineffective use of municipal property are the problems of municipalities.   Local authorities are not interested in solving them and as a result they lose the consolidated budget. And, subsequently, they lose investors. Local authorities do not provide them with favorable conditions. The President's decrees are not implemented. Municipalities do not depend on tax revenues from business, but on transfers from the federal budget," - Ms. Alekhnovich explained.

It is proposed to reform the tax system in two stages. At the first stage, a set of shocking tax measures is planned to stimulate investment and consumer demand, and to take business out of the shadows.  The second stage involves the revision of the Russian tax system based on the basic principles of the new tax policy: decentralization of tax and budget systems, including by stimulating the activity of municipalities, reducing direct taxes on production by increasing indirect taxes on consumption and taxes on natural rent, equalizing excessive income inequality of citizens.

Mikhail Orlov, Ombudsman involved in solving issues related to elimination of the entrepreneurs’ rights infringement, stressed the importance of using the right tax tools to attract investments in the Russian economy. "It is obvious that the struggle for investment is a struggle for investors. And in this struggle, business considers an opportunity to reduce the burden on salary budget and profit.  The theses set out in the concept are correct. Business needs stable legislation and predictability. We are very much interested in understanding the tax system we'll have to deal with in few years", Mr. Orlov stressed.

The discussion participants suggested the authors of the concept to pay attention to the transparency and stability of both tax and non-tax payments. In addition, according to the experts, it is necessary to take into account the environmental issues, including both environmental payments and control over the designated use of the lands. In addition, it is proposed to create special conditions for development of innovation sector, in particular, to establish the minimum tax rate for revenues from intellectual property rights and not to tax profits of controlled investment companies (CICs) if they invest in the development of a new intellectual product. In addition, according to the experts, the tax policy should be harmonized with the trends in the market of the Common Economic Space. In this regard, when developing a new system, the economic position of Russia's closest partners - Kazakhstan and the Republic of Belarus - should be taken into account.