BOFIT Viikkokatsaus / BOFIT Weekly 2018/34

The changes to the tax laws signed by president Putin early this month enter into force at the beginning of 2019. Although the value-added tax will generally rise from 18 % to 20 %, it will remain at 10 % for certain foods, children's goods, printed publications and pharmaceuticals. The economy ministry notes the full VAT rate applies to about three-quarters of goods and services. A zero VAT rate will be extended to cover domestic flights to and from the Russian Far East.

Excise taxes on alcoholic spirits and beer will remain unchanged next year, while the tobacco tax goes up by 10 %. Excise taxes on alcohol and tobacco will be adjusted in 2020−21 to keep up with the projected inflation rate, i.e. 4 % p.a., while taxes on tobacco products will go up slightly faster. Excise taxes on passenger cars will be adjusted for inflation. Taxes on motor fuels rise by 10 % next year from their level in the first half of this year (they have been reduced for the rest of this year to contain price increases). After 2019 they will be adjusted to roughly keep pace with inflation. Taxes on lower-grade gasolines, however, will remain unchanged in 2019−20 and the tax on heavy fuels used e.g. by cargo ships will stay at 0 % during 2019−21.

The revisions of tax laws keep the combined rate (based on wages) for mandatory social contributions at 30 % as the component going to the Pension Fund will remain at 22 %. Regional budgets will get some relief as regions will no longer have to pay social taxes into the health insurance fund for designated special groups of non-working people.

The tax on the physical capital of companies, which was limited to a maximum of about 2 %, will no longer apply to moveable assets (the tax will remain e.g. for buildings). As the tax has partly covered even relatively new production capital, it has been deemed to burden production while not doing very much to encourage investment. Unified principles will be applied to define the tax bases for taxes on real estate and the land tax.