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Putin Signs Revolutionary Russian Tax Overhaul
Russian President Vladimir Putin announced Monday that he has signed the new Tax Code into law, describing it as "a major event in the life of the country."
At a joint meeting of the cabinet and the presidential administration in the Kremlin, he said that he inked the bill Sunday, thanking all the cabinet member who had contributed to drafting the code and promoting it in the Federal Assembly, reported Russian news agencies.
Next week, the Finance Ministry is expected to submit its 2001 budget draft to the cabinet in accordance with the new tax code, Putin said.
The guidelines of the new tax code are to lower taxes rate, reduce tax categories and expand the foundation of taxation for increasing tax collection and enhancing business activities, he stressed.
The new tax code will introduce a flat income tax of 13 percent and other measures designed to boost the troubled Russian economy.
Introducing personal income tax, value-added tax and consumption tax, the new code also will consolidate all existing social charges, involving several payroll taxes, into a single social, lower social security tax.
Other parts of the package include eliminating loopholes such as income tax exemptions for soldiers and judges.
The new 13 percent flat tax, which would take effect next year, replaces an existing progressive tax rate ranging from 12 percent to 30 percent. That will mean a tax increase for poorer Russians who now pay 12 percent.
Observers believe the excise will be much higher after the code becomes effective. Especially, the consumption tax for alcohol and vodka will rise to five percent with the rate for beer up to 10 percent, while the index of tobacco probably tops to 50 percent.
However, Russian government leaders say that the new tax code will be a major step in reviving stalled market reforms.
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 that 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. The tax burden on companies is believed to fall by 25 percent after the new code comes into force.
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.
After being elected as head of state in March, Putin has repeatedly vowed to press ahead with market reforms, which stalled during the inertia of the last years of the presidency of Boris Yeltsin.
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