Journal of Tax Reform
Introduction of the personal tax-free allowance in Russia and its budget implications
V.V. Gromov
Russian Presidential Academy of National Economy and Public Administration, Moscow, Russian Federation
Abstract
The social problem of poverty can be mitigated by introduction of a personal tax-free allowance. In this paper the likely effects that a personal tax-free allowance will have on the Russian budget is investigated. It has been assumed that a tax-free allowance will hit regional budgets because they depend greatly on income tax revenue. The indicated effects were estimated by applying a personal tax-free allowance to the data on economic conditions in 2019. Rosstat data on population, poverty, wages and gross regional product and Federal Tax Service data on the number of taxpayers and personal income tax revenues were used. For the purpose of the paper, two scenarios were calculated. In the first scenario, a zero personal income tax rate is applied to wages below the minimum cost of living. We found that under this scenario the consolidated budget of Russia loses over 1 trillion rubles while regional tax revenues reduce by more than 10%. In the second scenario, citizens whose income is below the minimum cost of living are exempt from personal income tax. We found that under this scenario regional tax revenues would be reduced by 1-5%. In both cases the introduction of the personal tax-free allowance puts greater pressure on regions that critically depend on the personal income tax receipts. It was concluded that the negative effect of an introduction of a personal tax-free allowance would be greater, the greater the prevalence of low-income taxpayers in a region. Also considerable regional disparities create a risk that such tax reform will deepen regional inequality and be disruptive for the Russian budgetary system.
Keywords
income tax, progressive scale, tax deduction, tax-free allowance, tax reform
JEL classification
H24References
1. Gorodnichenko Yu., Martinez-Vazquez J., Sabirianova Peter K. Myth and reality of flat tax reform: Micro estimates of tax evasion response and welfare effects in Russia. Journal of Political Economy. 2009;117(3):504–554. DOI: 10.1086/599760
2. Ivanova A., Keen M., Klemm A., Pestieau P., Velasco A. The Russian ‘flat tax’ reform. Economic Policy. 2005;20(43):399–444. Available at: https://www.jstor.org/stable/3601019
3. Head J.G., Osberg L., Green L., Cassin A. M., Panitch L., Maslove A.M. (ed.) Fairness in taxation. University of Toronto Press; 1993. 176 p. Available at: https://www.jstor.org/stable/10.3138/j.ctt130jvxm
4. Roberts D., Sullivan M. The flat tax: Would wealthy individuals really pay? Challenge. 1996;39(3):24–28. Available at: https://www.jstor.org/stable/40721678
5. Adhikari B., Alm J. Evaluating the economic effects of flat tax reforms using synthetic control methods. Southern Economic Journal. 2016;83(2):437–463. DOI: 10.1002/soej.12152
6. McNulty J.K. Flat tax, consumption tax, consumption-type income tax proposals in the united states: A tax policy discussion of fundamental tax reform. California Law Review. 2000;88(6):2095–2185. DOI: 10.2307/3481214
7. Nicodème G.J.A. Flat tax: Does one rate fit all? Intereconomics. 2007;42(3):138–142.
8. Li C., Lin S. Tax progressivity and tax incidence of the rich and the poor. Economics Letters. 2015;134:148–151. DOI: 10.1016/j.econlet.2015.07.003
9. Davies J.B., Hoy M. Flat rate taxes and inequality measurement. Journal of Public Economics. 2002;84(1):33–46. DOI: 10.1016/S0047-2727(01)00110-4
10. Doerrenberg P., Peichl A., Siegloch S. The elasticity of taxable income in the presence of deduction possibilities. Journal of Public Economics. 2017;151:41–55. DOI: 10.1016/j.jpubeco.2015.10.001
11. Iyer G.S., Seetharaman A., Englebrecht T.D. An analysis of the distributional effects of replacing the progressive income tax with a flat tax. Journal of Accounting and Public Policy. 1996;15(2):83–110. DOI: 10.1016/0278-4254(96)00013-0
12. Barrios S., Ivaškaitė-Tamošiūnė V., Maftei A., Narazani E., Varga J. Progressive tax reforms in flat tax countries. JRC Working Papers on Taxation and Structural Reforms. 2018, no. 2. Available at: https://ec.europa.eu/jrc/sites/jrcsh/files/jrc115044.pdf
13. Keen M., Kim Y., Varsano R. The ‘Flat tax(es)’: principles and evidence. IMF Working Papers. 2006, no. 218, 51 p. DOI: 10.5089/9781451864786.001
14. Evans A.J., Aligica P.D. The Spread of the flat tax in Eastern Europe: A comparative study. Eastern European Economics. 2008;46(3):49–67. DOI: 10.2753/EEE0012-8775460303
15. Luttmer E.F.P., Singhal M. Tax morale. The Journal of Economic Perspectives. 2014;28(4):149–168. DOI: 10.1257/jep.28.4.149
16. Schneider F. Shadow economies around the world: what do we really know? European Journal of Political Economy. 2005;21(3):598–642. DOI: 10.1016/j.ejpoleco.2004.10.002
17. Cerqueti R., Coppier R. Economic growth, corruption and tax evasion. Economic Modelling. 2011;28(1-2):489–500. DOI: 10.1016/j.econmod.2010.07.006
18. Damjanovic T., Ulph D. Tax progressivity, income distribution and tax non-compliance. European Economic Review. 2010;54(4):594–607. DOI: 10.1016/j.euroecorev.2009.09.003
19. Cremer H., Gahvari F., Ladoux N. Income tax reform in France: A case study. FinanzArchiv = Public Finance Analysis. 2010;66(2):121–133. DOI: 10.1628/001522110X524179
20. Roberts M.L., Hite P.A., Bradley C.F. Understanding attitudes toward progressive taxation. Public Opinion Quarterly. 1994;58(2):165–190.
21. Nichols D.R., Wempe W.F. Regressive tax rates and the unethical taxation of salaried income. Journal of Business Ethics. 2010;91(4):553–566. DOI: 10.1007/s10551-009-0131-z
22. Paulus A., Peichl A. Effects of flat tax reforms in Western Europe. Journal of Policy Modeling. 2009;31(5):620–636. DOI: 10.1016/j.jpolmod.2009.06.001
23. Tarroux B. The value of tax progressivity: Evidence from survey experiments. Journal of Public Economics. 2019;179:104068. DOI: 10.1016/j.jpubeco.2019.104068
24. Tanzi V., Zee H.H. Tax Policy for Emerging Markets: Developing Countries. IMF Working Papers. 2000, no. 35, 34 p. DOI: 10.5089/9781451845341.001
25. Osberg L. The equity/efficiency trade-off in retrospect. Canadian Business Economics. 1995;3(3):5–19. Available at: http://hdl.handle.net/10222/34134
26. Raei S. Gradual tax reforms: If you like it, you can keep it. Journal of Economic Dynamics and Control. 2020;111:103793. DOI: 10.1016/j.jedc.2019.103793
27. Pántya J., Kovács J., Kogler C., Kirchler E. Work performance and tax compliance in flat and progressive tax systems. Journal of Economic Psychology. 2016;56:262–273. DOI: 10.1016/j.joep.2016.08.002
28. Saez E., Slemrod J., Giertz S.H. The elasticity of taxable income with respect to marginal tax rates: A critical review. Journal of Economic Literature. 2012;50(1):3–50. DOI: 10.1257/jel.50.1.3
29. Solov’eva N.A. Non-taxable minimum with regard to personal income tax– myth or reality? Nalogi = Taxes. 2011;(6):22–25. (In Russ.).
30. Barulin S.V., Barulina E.V. The paradoxes of the Russian system of the taxation. Finansy i kredit = Finance and Credit. 2012;(12):15–23. (In Russ.).
31. Sulyaeva D.D. Tax deductions as a mechanism of ensuring balance of interests of the state and taxpayers. Finansovoe pravo = Financial Law. 2011;(6):32–37. (In Russ.).
32. Davletshin T.G. Reforming the Russian tax system: Problems and solutions. Finansy i kredit = Finance and Credit. 2018;24(2):465–488. (In Russ.) DOI: 10.24891/fc.24.2.465
33. Semenova N.N. Improvement of taxation of individuals’ income in Russia in the context of formation of socially oriented tax policy. Finansy i kredit = Finance and Credit. 2018;24(1):129–142. (In Russ.) DOI: 10.24891/fc.24.1.129
34. Panskov V.G., Melnikova N.P. Personal income tax to play greater role in reducing the social inequality. Finansy = Finance. 2018;(10):41–47. (In Russ.).
35. Kosov M.E., Bondarenko N.O. Proportional and progressive taxation: Application of the theory to real-life problems. Mezhdunarodnyj buhgalterskij uchet = International Accounting. 2018;21(11):1267–1280. (In Russ.) DOI: 10.24891/ia.21.11.1267
36. Malis N.I. Problems of personal income tax reform: proportional or progressive rate? Nalogovyj vestnik = Tax Bulletin. 2018;(6):88–94. (In Russ.).
About Authors
Vladimir V. Gromov – Senior Research Fellow, Laboratory for Tax Policy Studies, Institute of Applied Economic Research, Russian Presidential Academy of National Economy and Public Administration (Building 9, 82–84 Vernadsky Avenue, Moscow, 119571, Russia); ORCID: 0000-0003-1340-359X; e-mail: gromov-vv@ranepa.ru
For citation
Gromov V.V. Introduction of the personal tax-free allowance in Russia and its budget implications. Journal of Tax Reform. 2021;7(1):20–38. DOI: 10.15826/jtr.2021.7.1.088
Article info
Received October 7, 2020; Revised January 10, 2021; Accepted January 29, 2021
DOI: http://dx.doi.org/10.15826/jtr.2021.7.1.088
Download full text article:
~532 KB, *.pdf
(Uploaded
29.04.2021)
Created / Updated: 31 August 2015 / 3 July 2017
© Federal State Autonomous Educational Institution of Higher Education «Ural Federal University named after the first President of Russia B.N.Yeltsin»
Remarks?
select the text and press:
Ctrl + Enter
Portal design: Artsofte
ISSN 2414-9497 (online)