Putin Announces New Flat Rate Tax
Looks like Russian President Vladimir Putin is keeping his word on market reform.
Putin announced Monday the signing of a new tax code for a flat income tax of 13 percent along with other measures to give the poor Russian economy a lift, according to government officials.
"This is an important event in the life of the country," Putin told a meeting of senior ministers and aides, according to Russian news agencies.
Under the new 13 percent flat tax, which would take effect next year, it replaces the current progressive tax rate ranging from 12 percent to 30 percent. This also means a tax increase for poorer Russians who now pay 12 percent.
Other parts of the package include consolidating several payroll taxes into a single, lower social security tax and eliminating loopholes such as income tax exemptions for soldiers and judges.
The government, which consistently fails to meet its tax collection goals, says the lower rate will cut evasion and boost government revenue by encouraging businesses and individuals to report their true incomes. Officials say the single rate will also boost tax revenue by making it easier to calculate and collect taxes.
The government is also hoping the lower rate will encourage Russians to bring home and invest some of the billions of dollars now lodged in secret foreign bank accounts. Russian officials estimate the tax burden on companies should fall by 25 percent.
Tax evasion is a major problem in Russia, with most businesses and private citizens avoiding tax altogether or underreporting their incomes. Business leaders complain that the combined burden of income tax, profits tax and social security taxes would drive them out of business if they paid in full.
Putin has vowed to press ahead with market reforms, which stalled during the inertia of the last years of the presidency of Boris Yeltsin, but has given few concrete plans since he was elected in March. The tax reforms are among the government's first major policy initiatives.
Some government critics contend the flat tax is a ruse designed to persuade businesses to report their full incomes and the high tax rates will be restored in a year or two.
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