FBK Economic Club experts: Russia is very likely to introduce a progressive scale of taxation within the next few years, which might be damaging for the economy.

On 19 November a regular meeting of the FBK Economic Club was held on the topic of “Out of the crisis - at the expense of the rich”. Igor Nikolayev, Director of the FBK Institute of Strategic Analysis, presented his analytical report which focuses on the opportunities of bringing back the progressive taxation in Russia, as well as the consequences of increasing the income tax rate by foreign countries in order to overcome the economic crisis.

The authors of the report arrived at the conclusion that:

• Russia lost the time on the verge of the crisis which started in 2008. Now the “opening for opportunities” will only be available after recovering from the economic crisis.
• It is a mistake to increase the fiscal burden on the rich under the pre-crisis and crisis conditions. The experience of those who have practised such measures proves that it does not contribute to the economic growth.
• It is necessary to increase the tax burden on the rich, to materially enhance other similar measures of fiscal pressure (where there are reserves: real estate tax, luxury tax, etc.) not during the time of pre-crisis or crises but against the background of stable economic development.

In the meeting took part:

• Seppo Remes, Head of Kiuru Company, on the Board of directors of Russian Grids, SIBUR Holding, ROSNANO companies.
• Oleg Buklemishev, senior lecturer of the Moscow University School of Economics
• Sergey Smirnov, RANS academician, the HSE Institute of Social Policy and Soci0-Economic Programs, National Research University
• Nikita Maslennikov, advisory expert of the Institute of Contemporary Development (INSOR)
• Askold Birin, FBK Partner, director of the International Reporting Department

Seppo Remes, in his commentaries to the speaker’s report said that it was customary to exaggerate the tax rate effect on the economy; human institutions make a more significant impact, and he believes that in societies less differentiated by their income the institutions are developed better. In Russia, however, where the income gap among different populations is significant, they are less developed.

Oleg Buklemishev was skeptical about the possibility to raise the tax rate. He referred to the example of the studies carried out by the World Bank "Tax Effort in Developing Countries", which states that the summary tax burden in Russia is comparable to such countries as France, Belgium and other countries of the “Old Europe” where it is about 45%. At the same time the expert noted that the government still needs the tools to redistribute income between “very rich” and “very poor”, and the progressive taxation scale can be such instrument

Nikita Maslennikov drew the attention of the audience to the interdependence of the tax and insurance payments: if a progressive PIT rate is introduced, problems might arise with the collection of insurance (in particular, pension) contributions. N.Maslennikov added that the report includes a very important prognostic component – based on the materials of the comparative analysis of use of the “flat” and progressive scales of taxation in different countries, without changing anything in the legislation, one can try to give the answer to the question “What will happen if the progressive scale is in place?”

Sergey Smirnov pointed out the report’s great potential, stating, in particular, that the applied conceptual approach shifted discussing the problem of the progressive scale introduction to the purely economic level, and the highlighting and economic analysis of the groups of countries of different nature could broaden the applicability of conclusions and give new opportunities to the research.

Askold Birin added, that on the evidence basis we could insist that the insurance contributions as well as the income tax were the analogue of “taxation of the rich”: the increase of insurance charges affected badly not only the companies’ gains, but also the income of the owners and beneficiaries.
According to FBK Partner, it is worthwhile to specify the tax rates for different levels of income in order for the “tax on the rich” to be exactly as designed: the increased burden on the windfall profit.

The experts spoke highly about the effort made by the Institute of Strategic Analysis.

Text of the analytical report (in Russian)