The Future of Russia’s Tax System: Stepping Up to the Challenge
KEY CONCLUSIONS
Trust and technology play an important role in the tax system
“Technologies offer incredible opportunities today. We are all discussing what a post-industrial economy looks like. If you look at the birthplace of data, it is born out of the relationship of taxpayers. We analysed the international experience and found that when the state puts its interests ahead of everything else, we get difficult technology and everyone resists. That is why all our activities focus on electronic document management and how much it suits taxpayers. Then we’ll see, maybe we don’t need to request declarations if all the data is already entered, as it is for the self-employed,” Federal Tax Service Director Daniil Egorov said.
“It’s crucial to preserve the rules and promises that the state gives to taxpayers. Develop something that builds trust. […] The tax on professional income grew out of the amendments for the self-employed. Back then, we viewed them as nannies and tutors, and said that if you come out of the shadows, you don’t have to pay taxes at all for three years. At that time, 1,200 people believed the government that they would not be touched; today, more than two million people believe,” said Andrey Makarov, Chairman of the State Duma’s Committee on Budget and Taxes.
“The tax system should not impede the growth of companies. Today we see that in sectors where the share of salary costs is high, this gap is palpable. This does not stimulate growth and leaves companies in a fragmented state [...] The second issue is the question of opportunistic income and how to ensure it is directed to investments,” Russian Minister of Economic Development Maxim Reshetnikov said.
PROBLEMS
Flaws in the Tax Code and tax instruments
“The Tax Code is inconsistent with the current level of interaction between the tax service and taxpayers. […] The Tax Code has been spoiled by thousands of changes that make it an unreadable document. A proposal has been made to prepare a new version of the Tax Code and move from detailed regulation (clear deadlines for the submission of documents, etc.) to the establishment of principles based on the fact that rationality and sufficiency should be the most important things,” said Andrey Makarov, Chairman of the State Duma’s Committee on Budget and Taxes.
“We need to seriously work on the existing tax legal field. We are ready to do this in order to simplify administration for taxpayers, make their work more comfortable, work better, and pay more taxes,” Russian Minister of Finance Anton Siluanov said.
“The budgetary situation in the regions is improving, but it is far from balanced […] The tax system needs to be changed […] Any changes must be predictable. We shouldn’t try to use tax instruments to solve all the problems that we face,” Russian Minister of Economic Development Maxim Reshetnikov said.
SOLUTIONS
Customization and digitalization will help keep a positive effect in taxation
“We need new mechanisms for the future. Compensation shouldn’t be provided from the budget for infrastructure, but from taxes,” Russian Minister of Economic Development Maxim Reshetnikov said.
“As a foreign business, we saw support last year. We support the need to fight tax evasion. A real balance needs to be achieved so that the interests of ‘white’ business are taken into account […] We need to find an answer to the question of how to support the fine-tuning of the tax system and support the process of the ‘beautification’ of the economy so that it is as efficient as possible and less costly […] The use of digital technologies helps us preserve what has been achieved, while simultaneously combatting evasion or abuse,” Association of European Businesses CEO Tadzio Schilling said.
“We can work without clearly describing every action […] Right now we have been talking a lot about how the government should provide maximum services. What are maximum services? This means customization for each individual and it’s very flexible. How can we provide this flexibility with legislative micromanagement? There are legal relations where we can form principles. If the actions of government agencies meet the principles, then they should work like that,” Federal Tax Service Director Daniil Egorov said.
“The Tax Service has become so cool and technology-savvy that we are being encouraged to possibly change the entire Tax Code. Whereas previously in our country the taxpayer did all the tax reporting and the Federal Tax Service handled verification, now everything is the other way around – the tax authority fills in all the data for tax payments, presents these calculations, and the taxpayer verifies it. This is a paradigm shift. We are working for the result, when there is no need to impose any sanctions, and additional comfort for taxpayers. The issue of trust is being resolved,” Russian Minister of Finance Anton Siluanov said.
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