The government is discussing increasing VAT to 20%

One of the elements of “tuning” the tax system promised by Anton Siluanov at SPIEF could be an increase in VAT to 20%, Vedomosti found out . Such a proposal was already discussed in 2017, but then it was proposed to simultaneously reduce insurance premiums - now this is no longer discussed.

• Raising VAT to 20% is one of the options that will help find the 8 trillion rubles needed to implement Vladimir Putin’s “May decree” . It could bring the budget an additional 2 trillion rubles. The state plans to borrow another 3 trillion rubles through infrastructure bonds, 2 trillion through raising the retirement age, and 1 trillion through changes in the taxation of oil workers.
• The possibility of increasing VAT (then to 22%) was discussed in 2017, but then it was simultaneously proposed to reduce insurance contributions to the budget from 30% to the same 22%. The main proponent of the reform (called “maneuver 22/22”) was Anton Siluanov. Now there are no proposals to reduce contributions. This is “an ordinary deception,” one of the members of the RUIE bureau told Vedomosti.
• In addition to the direct increase in VAT, the preferential tax rate of 10% may also be abolished - currently it is valid for food (except for delicacies), medicines, books, textbooks and children's goods. Last year, the benefit cost the budget almost 550 billion rubles.
• Vedomosti’s sources emphasize that the decisions can still be revised, “everything changes very quickly and constantly.” But there is little time for changes: Siluanov promised that the Duma will make decisions on the tax system in the spring session, that is, before the end of July 2018.
• VAT is not a direct tax on the population, but it is actually paid by the consumer: business always includes the tax in the final price. An increase in VAT by 2 percentage points will accelerate price growth by 0.8–1 percentage points, calculated Alfa Bank chief economist Natalia Orlova, noting that this is “not scary” in conditions of low inflation (2.4% in April on an annual basis expression). Exporters will not be affected by the tax increase (VAT is not charged when exporting), but retail companies and manufacturing industries will suffer the most.
• Personal incomes in Russia are falling for the fourth year in a row - in 2017 they decreased by 1.7% compared to the previous year. The share of Russians who have savings is also falling .

Context

• There is almost no official information about future tax increases - Siluanov only promised not to introduce a sales tax and said that the government is not going to change taxes over the next six years, but only “some adjustments.” The final decision on taxes, according to the minister, should be made during the spring session of the State Duma.
• After the inauguration, Vladimir Putin signed a new “May Decree” defining the development of Russia until 2024. To implement the decree, 13 national projects prepared by the Ministry of Finance and the Ministry of Economic Development will be launched . In total, it is planned to spend 25 trillion rubles on them; there is only 17 trillion in the budget.

What's in it for me?

If your company serves the end consumer in a competitive market, this is bad news for you: raising prices in the face of falling customer income is a risky task, and business margins will inevitably decrease. The fall in the purchasing power of the population has already led to a crisis for the largest retailer Magnit; with an increase in VAT, the situation will become even worse.

Artem Gubenko