Russia Reconsiders Sales Tax
- Aug 8, 2014 | Gail Cole
With an economic slowdown looking likely, Russian President Vladimir Putin is seeking alternative sources of revenue. He may have found one in sales tax.
This wouldn’t be the first time Russians have tried to add a tax on consumer spending. Russia allowed regions to impose regional sales tax from 1998 to 2003, when the tax was repealed because it was found to be ineffective. It was also found to be unconstitutional by the Constitutional Court of Russia, because both value added tax (VAT) and sales tax were imposed. Generally, countries levy either VAT or sales tax.
But Russia may try it again. The Ministry of Finance has drafted a bill allowing regions to impose a sales tax, at a maximum rate of 3%. Regions would be able to set a lower rate, so long as the rate is the same for everyone. According to Russia Beyond the Headlines, the draft bill “prohibits differentiating the rate based on types of commodities and categories of taxpayers.”
Under the current proposal, vital necessities would be exempt from sales tax. These include:
- Dairy products and milk
- Edible oils
Certain non-food items would also be exempt, such as medicine for children and diabetics, and children’s clothing and shoes.
As in the United States, sales tax is a way to increase revenue. According to Dmitry Bedenkov, head of the analytical department of the IC Russ-Invest, sales tax would boost “budget revenues which have fallen due to the deteriorating domestic economic situation.”
Yet if sales tax seems a good way to add revenue, there is also concern that it would “lead to a growth in inflation.” In addition, sales tax would raise the cost of goods, which could cause a drop in consumer spending. That could “reduce the expected impact of the introduction of a sales tax.”
Annual sales tax revenue of approximately 200 billion rubles ($5.6 billion) is projected, according to the Russian Ministry of Finance. That would be welcome, although it may not quite cover budget deficits. Regional deficits are expected to reach roughly 800 billion rubles ($22 billion).
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