Medvedev proposed increasing VAT to 20%

Prime Minister Dmitry Medvedev has proposed raising the value added tax (VAT) from 18% to 20%. this He said at a government meeting on Thursday.

Details

• Medvedev clarified that the government is not going to shift the tax burden on the poor and therefore will retain all tax breaks on basic socially significant goods and basic services. “These are reduced rates for food, children's goods, medical goods, and zero rates for domestic interregional air transportation,” Medvedev said.
• The Prime Minister also said that in the process of discussing tax changes, the introduction of a sales tax, a transition to a progressive personal income tax scale and simply an increase in the rate of this tax were proposed, but the government, according to him, refused such "unnecessarily difficult steps for people."
• As Finance Minister Anton Siluanov later clarified , the new VAT rate should come into effect on January 1, 2019. According to the First Deputy Prime Minister, the increase in the VAT rate will bring the budget more than 600 billion rubles of additional revenue per year and, together with additional revenue from the oil and gas maneuver, will become the main source for financing Putin's new May decree.
• Siluanov also announced the government's plans to abolish the tax on movable property as burdensome for businesses and speed up VAT refunds to exporters by lowering the thresholds for the amount paid by an enterprise over 3 years of taxes (from seven to two billion rubles).
• The fact that the authorities had decided on the previously promised "tuning" of the tax system was reported on Thursday morning by Vedomosti.

Context

• After the inauguration, President Vladimir Putin signed a new May Decree that presented Russia's development program for the next six years. In total, it is planned to spend 25 trillion rubles on the implementation of the decree, while the budget has only 17 trillion.
• The increase in VAT will help find 2 of the 8 trillion rubles needed to fulfill the president's election promises. “The decision to raise VAT is the most effective for receiving additional money and the least harmful in terms of increasing the tax burden,” said Andrey Makarov, chairman of the State Duma Budget Committee.

VAT is not a direct tax on the population, but businesses always include the tax in the final price, and in fact it is paid by the consumer. According to the chief economist of Alfa-Bank Natalia Orlova, the VAT increase by 2 p.p. accelerate price growth by 0.8–1 p.p. The government had an alternative. As Alexei Kudrin, head of the Accounts Chamber, said earlier, it is possible to avoid tax increases until 2024 if the budget rule is revised and the cut-off price, above which oil and gas revenues begin to be transferred to the National Wealth Fund, is increased from $40 to $45, and the budget deficit is also increased. Speaking at a government meeting today, Medvedev did not explain why the tax hike option was chosen.

Liana Faizova