Russian Oil

9 Pages 2322 Words

Taxation in Russia
Throughout the first half of the 1990s, international financial institutions warned Russia that major adjustments were needed in the structure and the administration of the country's tax-collection system. However, in 1996 few meaningful changes had emerged. Tax reforms until that time had emphasized revenue from income, consumption, and trade, with the value-added tax (VAT), corporate profits taxes, and personal income taxes accounting for 60 to 70 percent of total revenue (see table 16, Appendix). Beginning in 1993, experts have pointed to changes in the bases and rates of the profit tax and the VAT as a major cause of declining revenues. Between 1993 and 1994, the ratio of taxes collected to GDP declined from 41 percent to 36 percent, although the percentage of GDP paid in taxes already was lower in Russia than in any of the Western market economies. In the first quarter of 1996, only 56 percent of planned tax revenue was realized.
The system in place in 1996 taxed the profits of enterprises heavily, especially in comparison with the tax burden of personal income. In 1993 business profit taxes were three to seven times higher than in Western economies, and personal income taxes were two to four times lower. That emphasis was not conducive to expanding investment, and many non-wage sources of income were not captured by personal income tax standards. According to a 1996 estimate, Russians kept US$30 billion to US$60 billion in foreign banks to avoid taxation.
The VAT (Value Added tax), which is levied on imported and domestic goods, is set at 21.5 percent for most purchases and 10 percent for a specified list of foods. Administration of that tax is complicated by uneven compliance and accounting rules that do not define clearly the amounts to be classified as value added. Taxation on the extraction and sale of natural resources is a major revenue source, but the current system yields disproportionately little rev...