Posted on 04/14/2002 1:45:54 PM PDT by Dallas
MOSCOW --
Like many Russians, Nellie dreaded her annual visit to the local tax inspectorate, with its long lines, surly officials, and Byzantine tax forms.
But during her last visit, the 66-year-old grandmother, who supplements her meager pension by cleaning apartments, received a pleasant surprise.
"My taxes were three times lower," she said. "They must have understood they were too high before."
She's not alone. The government says more Russians are paying income tax, thanks to an innovation that would make American billionaire and presidential aspirant Steve Forbes proud.
Last year, President Vladimir Putin took a page from Forbes' campaign book and introduced a flat tax on income. At 13 percent, it's the lowest rate in Europe -- designed to draw more Russians out of the "shadow economy" and honest taxpayers of them.
The results have been dramatic. Personal income tax revenue shot up nearly 47 percent last year, and tax revenue overall rose 50 percent, according to government figures. Early results from 2002 look even better.
"We expect the number of people filling out income tax forms to increase substantially," said Dmitri Mikulich, deputy head of the Tax Ministry's individual income tax department.
For a society with a long history of distrust in the government and a tradition of hiding cash at home, the taxpaying boom marks something of a revolution. But many analysts said it's far too early to declare complete victory.
"So far, so good," said Alexander Morozov, a senior economist at the World Bank in Moscow. "There are signs that more people are paying personal income tax, but the process of moving from shadow to light has only just started. There's a long way to go."
Small and medium-sized Russian businesses complain they still face a burdensome array of taxes that are impossible to fulfill.
The worst culprit, many say, is the "social tax" on salaries, of up to 35.6 percent, covering contributions to state pension and medical funds.
There's also a 5 percent sales tax, a 20 percent value added tax, a 5 percent advertising tax, a 2 percent property tax, a 1 percent road tax, plus a 24 percent tax on net profits after most other taxes, not to mention various registration fees.
"There's a sea of taxes," said Slava, 40, who owns a travel agency in Moscow and declined to give his last name. "What other country in the world tries to take so much money?"
Like many other business owners, Slava operates under a dual salary system. He pays his four employees in dollars, slipping them an envelope of cash every month, but keeps another set of records on his books, showing much lower wages in rubles -- for the benefit of the tax inspector.
The gap between real and "official" salaries is striking. Slava's employees make between $100 and $300 a month, while on paper they earn a mere 500 rubles to 1300 rubles ($16 to $42).
Most tax inspectors suspect they're not being told the full story, but are willing to overlook their doubts for a "gift," like a bottle of liquor, Slava said with a shrug. Only through this sort of routine deception, he said, can he keep his business from going under.
"If the government makes it a 13 percent tax for business, just like for individuals, then I'm ready to pay it, but right now there's no way," he said. "You'd have to turn over all your profits."
Putin has promised to change that. Last month, he proposed a tax reform package for small business, that he called "no less revolutionary" than the flat tax on income.
The reforms would eliminate many taxes for small businesses, and give them the option of paying a 20 percent tax on profit or an 8 percent tax on revenues.
Morozov of the World Bank says it's important to make the taxpaying process less bureaucratic as well.
"The tax burden is not just the amount of tax, but the time and effort it takes to fill out all the forms," he said. "Unless it's simplified, it will be difficult for businesses to stay afloat."
Copyright © 2002, The Associated Press
Would absolutely be amazed to see a similar increase in total tax collection similar to the Kennedy era (geeez, where'd they get that idea?) when total tax revenue increased as the collection percentage decreased.
Flamers--save your gas and ignitions for a true liberal. I am as tax conservative as we get. Meanwhile, I am not condoning JFK's other activities...
What exactly does this mean?
Her taxes were a third of what they had been? A quarter?
LOL
If the Russians realize that a simple flat tax works what holds us with our complicated and completely unfair tax system.
The simple answer is, the russion flat tax isn't just a "Flat Tax". It's a full fledged European VAT on steroids.
Where "Flat Taxes" are concerned, it behooves one to look behind the screen.
| RUSSIA: PART TWO OF THE RUSSIAN FEDERATION TAX CODE August 10, 2000
Alexander Chmelev and Evgeny Astakhov Baker & McKenzie, Moscow Office
Sent by BISNIS, U.S. Department of Commerce, http://www.bisnis.doc.gov Judith_Robinson@ita.doc.gov, Tel: 202-482-2293. BISNIS sends this report as a courtesy to the U.S. business community. This is not to be construed as endorsement or sponsorship of any information or group. On August 5, 2000, Russian Federation President Vladimir Putin signed into law four chapters of Part Two of the Russian Federation Tax Code and Federal Law No. 118-FZ ôOn the Implementation of Part Two of the Russian Federation Tax Code and Amendments to Certain Federal Laws on Taxationö (the "Implementation Law"). The chapters of the Tax Code signed into law by the President are Chapter 21 - VAT, Chapter 22 - Excise Taxes, Chapter 23 - Personal Income Tax, and Chapter 24 - Unified Social Tax. These four Chapters and the Implementation Law were officially published in Rossijskaya Gazeta on August 10, 2000, and, with few exceptions, will become effective on January 1, 2001. The most sweeping changes introduced into the Russian tax system by this new legislation are as follows: 1. VAT (Chapter 21 of the Tax Code) Although Chapter 21 of the Tax Code does not change VAT rates or the general VAT structure, it contains numerous provisions, which will significantly affect most businesses in Russia. Most notably, Chapter 21 substantially modifies the "place of service" rules, which generally determine whether for VAT purposes a particular transaction has occurred in Russia and is, therefore, subject to Russian VAT. Effective from July 1, 2001, Chapter 21 also will treat export sales to CIS countries in the same way as sales to all other foreign countries, and will exempt them from VAT. On the downside, Chapter 21 will repeal a number of long-standing and important VAT exemptions, including an exemption for license fees for the use of intellectual property (such as, patents, copyrights, and trademarks), and will significantly narrow the VAT exemption for pharmaceuticals. 2. Personal Income Tax (Chapter 23 of the Tax Code)
Chapter 23 of the Tax Code will replace the current progressive tax rates ranging from 12% to 30% with a flat tax rate of 13%. This 13% rate will apply to almost all categories of income earned by individuals who are Russian tax resident. A 30% rate will apply to dividends, and to any Russian source income received by individuals who are not Russian tax resident. A 35% rate will apply to income from gambling, lottery prizes, deemed income from low-interest or interest-free loans, certain insurance payments, and excessive bank interest. 3. Unified Social Tax (Chapter 24 of the Tax Code) Chapter 24 of the Tax Code will replace the existing employersÆ contributions to four separate social benefit funds (which currently are imposed at an over-all rate of 38.5%) with one unified social tax. This unified social tax will have a regressive tax scale from 35.6% to 2% of an employee's salary with the lowest rate applicable to the portion of an employeeÆs annual salary in excess of 600,000 Rubles (approximately US$22,000 at the current exchange rate). It should be noted that under the Implementation Law, as a transition rule, the lower rate of this tax will be 5% rather than 2% during 2001. 4. Excise Taxes (Chapter 22 of the Tax Code) As a countermeasure to reducing rates of other federal taxes, Chapter 22 of the Tax Code provides for an increase in excise tax rates for gasoline and other oil products by almost 300%. It also provides for a less dramatic increase of excise tax rates for tobacco products and certain passenger cars. 5. The Implementation Law a. Turnover Taxes Effective from January 1, 2001, the Implementation Law repeals the Housing Fund Tax of 1.5% and reduces the Road Users Tax from 2.5% down to 1% and completely repeals the Road Users Tax effective January 1, 2003. These taxes are imposed on gross sales and have been among the most onerous taxes on business in Russia. b. Regional Tax Concessions The Implementation Law reconfirms the right of regional authorities to provide tax exemptions for the regional portion of federal taxes retroactive to April 1, 1999. This reconfirmation resolves an issue that arose in 1999 as to whether the regional portion of profits taxes could be reduced pursuant to regional incentive laws. c. Profits Tax Rate Apparently in compensation to local budgets for the cancellation of turnover taxes, the Implementation Law authorizes municipal governments to introduce an additional "municipal" profits tax of up to 5% of a taxpayer's taxable profits. Thus the maximum overall profits tax rate may be increased from 30% to 35%. This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS) |
You got that right!
[i.e. Consumption = (Gross_Income - savings & investment)]
Definition [ http://www.encyclopedia.com/articles/13330.html ]:
value-added tax
levy imposed on businesses at all levels of production of a good or service, and based on the increase in price, or value, added to the good or service by each level. Because all stages of a value-added tax are ultimately passed on to the consumer in the form of higher prices, it has been described as a hidden sales tax. Originally introduced in France (1954), it is now used by most W European countries.
A Vat works can work in several ways, the most commonly used form is the Credit Invoice Method.
Basically a business sells a product or service it pays tax on gross sales revenues and receives a credits for the tax embedded in gross purchases.
The final customer of the product (retail level) does not get the credit on purchases thus the burden of the tax is embedded in the price paid and generally does not receive a receipt detailing such taxes (i.e. "a hidden sales tax").
Note the tax is paid on Gross Receipts less Gross purchases. (essentially Income)
A Credit Invoice VAT is described in detail by Vern Hoven in this article:
The alternate and sneakier method of collecting a VAT is the Subtraction Method and is indistinguishable from a corporate income tax.
Issue: What Is the Best Way to Collect a Value Added Tax?
A value-added tax (VAT) generally is a tax imposed and collected on the value added at every stage in the production and distribution process of a good or service. Although a VAT may be computed in any of several ways, the amount of value added generally can be thought of as the difference between the value of sales and purchases of a business. (e.g. Revenues - Costs = Taxable Business Income)
***
Subtraction-Method VAT. Under the subtraction method, value added is measured as the difference between a business's taxable sales and its purchases of taxable goods and services from other businesses. At the end of the reporting period, a rate of tax is applied to this difference in order to determine the tax liability. The subtraction method is similar to the credit-invoice method in that both methods measure value added by comparing sales to purchases that have borne the tax.
***
The subtraction method differs from the credit-invoice method principally in that the tax rate is applied to a net amount of value added (sales less purchases) rather than to gross sales with credits for tax on gross purchases. A business's tax liability under the credit-invoice method relies on the business's sales records and purchase invoices, while the tax liability under the subtraction method may rely on records that the taxpayer maintains for income tax or financial accounting purposes.
Guess who doesn't get to receive credits for purchases they make.
I think in Armey's plan it would take a super majority of both houses to raise the the limit once it's been set.
So is a flat tax with a cap a good thing, or not ?
How do you set the limit, you don't necessarily need to change rates to increase the burden of a tax. Just redefine what taxable income is behind the scenes by changing deductibility of business expenses.
The Armey flat tax cap (supermajority) does not address other forms of taxes such as payroll, excise, tariffs etc. All of which impact the individual by forcing increases in price of goods and services.
At its core, the essential problem with any VAT system of taxation is that taxes tend to be buried or disguised such that they are not recognised by the electorate as a tax on the individual citizen. Taxation merely looks like more inflation when hidden behind the veil of business or monitization of public debt.
Every individual still pays the burden through his commerce with others, (e.g. buying food at the grocery store) he just cannot perceive how much and who should get the blame, business and the economy or Congress. That is a formula for government growth without limit.
The US and the EU
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.