02/29/2024

Russian authorities intend to change the tax system for individuals and companies again, so that people and businesses with high incomes pay more to the budget. President Vladimir Putin announced this during his address to the Federal Assembly on Thursday.

“I propose to think through approaches to modernizing our fiscal system to more equitably distribute the tax burden towards those with higher personal and corporate incomes,” Putin said.

He added that the government and the State Duma have been instructed “in the near future” to present “a specific set of proposals and fix them in legislation until 2030.”

We are talking about introducing a progressive scale of personal income tax (NDFL) in Russia, a source close to the presidential administration told The Moscow Times. Already, citizens earning more than 5 million rubles a year pay 15% of their income instead of the standard 13%. Putin did not specify the new personal income tax parameters. But the legislative initiatives on tax differentiation, which the president spoke about, are already ready and will be worked out this year, said the head of the Ministry of Finance Anton Siluanov. 

According to a source of The Moscow Times, in addition to personal income tax, we are also talking about a tax on excess profits of corporations. The so-called windfall tax, introduced last year as a one-time event, may become permanent. The budget, according to the Ministry of Finance, received more than 300 billion rubles from the tax. It was paid by companies whose average pre-tax profit for 2021–2022 exceeded 1 billion rubles.

At the end of January, Siluanov assured that the tax was a “one-time measure” and “there are no plans to collect it again.” But the Kremlin liked the result—hundreds of billions of rubles in additional fees—the Moscow Times source said.  The budget, which spends every third ruble on the war, needs money to implement ambitious plans – from recreating the aviation industry from scratch to attempts to increase the birth rate. But the treasury must be balanced, Siluanov explained: “This is the basis of macroeconomic stability.”

The government’s reserves are rapidly dwindling. The National Welfare Fund, which was accumulated from oil and gas windfalls, has halved its weight over the two years of war: out of $113.5 billion in liquid assets at the beginning of 2022, $55.9 billion remained as of January 1, 2024. The Ministry of Finance estimates the total volume of the National Welfare Fund at $133.4 billion, but almost two-thirds of this amount has already been spent on saving state banks, investing in shares of state-owned companies and megaprojects. “De facto, this money is no longer there,” says Oxford Economics economist Tatyana Orlova: only liquid assets – yuan and gold – can be considered reserves for a rainy day.

This year, the Ministry of Finance planned to spend another 1.3 trillion rubles from the National Welfare Fund to finance the budget deficit, and the Ministry of Economic Development is going to take almost 900 billion rubles more for investment projects. This means that “Russia no longer has insurance against falling oil prices,” states Evgeniy Suvorov, economist at CentroCreditBank and author of the MMI telegram channel. If the price of a barrel falls to $50, this will subtract another 1.5–2 trillion rubles from reserves, and “we will approach the depletion of reserves at the beginning of 2025,” Suvorov warns.

(C)MOSCOW TIMES 2024