The government will not raise wage taxes from the present 26% to 34% in 2011 as projected, Prime Minister Vladimir Putin said at a meeting on Wednesday, outlining major tax policies for the next year and the scheduled period from 2012 through 2013.
The prime minister said that the government must seek reserves in order to sustain next year's fiscal burden more smoothly and with more consistency. Representatives of large and medium businesses proposed a ready solution, suggesting the expansion of property privatization, the introduction of a progressive tax on high wages, and establishing a foundation for taxation of real property according to commercial rates.
Addressing the issue of the tax increase on wages from 26% to 34%, which was initially planned for 2010, Putin said that the tax rise for business should be very smooth.
"It is impossible to provide the pension system with financial stability and improve living conditions for the elderly without raising taxes," Putin said. Yet, he noted, the planned increase has been deferred due to the economic crisis, with the previously mandated insurance premiums of 26% retained for 2010. "We should seek additional reserves to slow the growth of fiscal burden," Putin noted, although without mentioning any specific rates. Previously, Russia's Finance Ministry came up with an initiative to increase the tax to 32% rather than to 34%, and retain it at the same level through 2011 and 2012. The initiative, however, has met harsh criticism from the Ministry of Public Health and Social Development, which had planned to resolve the Pension Fund deficit through increasing the government's fiscal burden.
The final decision on the issue will not be made until the end of March, when the government will meet to discuss major directions of tax policy.
Hi-tech enterprises relieved from extra tax burden
The cabinet has also taken steps to lessen the tax burden on innovative enterprises which were expected to be most affected by the plans of the Ministry of Public Health and Social Development.
Currently, the companies that are considered innovative - particularly the resident companies of technology development in special economic zones - pay only 14% on employee wage taxes. "We are ready to retain this rate, which is actually what these companies pay today," Putin said.
Yet the tax burden on these companies will show a net increase all the same – where they now pay a 14% margin of 280,000 roubles, next year that margin will grow to 415,000 roubles a year. But the list of enterprises that can take use of the moratorium can be expanded. Primarily this will concern hi-tech industries.
The government will find money for old-age pensioners
We will not forget old-age pensioners, Putin promised. The prime minister suggested that the government seeks reserves for financing the budget and Russia's Pension Fund while retaining the ability to gradually increase fiscal burden and avoid a heavy hit to business.
Business representatives, meanwhile, say the government has more than enough of the reserves in question. Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs, said in his video blog that the budget can be replenished through mass privatization of state assets. This will both bring additional financing to the budget and improve asset management, he noted.
According to Delovaya Rossiya (Business Russia) movement chairman Boris Titov, the government could grant companies the right to privatize both state property and state lands, 80% of which is being utilized inefficiently.
In addition, Titov claimed, an extra 1.5 trillion roubles could be raised by introducing a real property tax, which would allow the government to gain revenue from residential apartments' market value rather than from nominal claims.
Another measure proposed by the business elite is the introduction of a progressive tax on high wages. "The government could keep the 26% tax rate on annual wages not exceeding 415,000 roubles, while a higher tax could be imposed on higher wages," Titov noted. This system is used in many countries, he said. In the United States, for instance, higher tax brackets reach 38%, but minimum wages are tax-free.
Ksenia Batanova