Russian money-bags to deal with luxury tax in 2013

The tax on luxury will become reality for all Russians without exception next year. President Vladimir Putin reminded everyone of that in his annual Address to the Federal Assembly. According to experts, the new tax may send a definite message to wealthy citizens to redistribute their revenues.

The head of state said in his speech that the decision on the so-called luxury tax should be made in the first half of 2013. According to the official website of the President of the Russian Federation, one should not give up on the "flat" income tax scale, since the progressive taxation of citizens does not provide social justice. According to Putin, the introduction of progressive taxation will become a burden for millions of people with average incomes.

"If you start to analyze where it leads to, you'll see that that's the way it will be. There will be tax evasion and shortfall in the budget and the treasury. In this case, we will have shortages in the finance of the army, pensions and the public sector. Therefore, one should be very careful in this area," said Putin.

"We must act carefully, but what we can and must do is to tax the so-called prestigious, conspicuous consumption," Rosbalt quoted the President.

The discussions about the issue began in the beginning of the year. Deputy Minister of Economic Development, Stanislav Voskresensky, said back then that the luxury tax in 2013 could be introduced for real estate from ​​1,000 square meters.

According to Voskresensky, the number of one thousand square meters excludes middle class taxpayers. "Clearly, those having real estate of such square do not fall under the definition of middle classes. But the main thing is not to wait for the real estate tax to be introduced. A higher tax on personal property can be introduced already now," the official said.

According to him, there will not be many owners of such real estate. Hence, the number of taxpayers would be large either. Transportation tax can provide for a big part of the luxury tax, but the amount will be small still.

Finance Minister Anton Siluanov said in mid-February that the luxury tax would most likely be levied through the taxation of large real estate and financial assets, as well as through increased rates of the vehicle tax on high-performance cars.

Anton Safonov, an analyst with Investkafe, expressed an opinion earlier this year that "the introduction of such a tax is quite a logical step, as it will indeed balance out the tax burden. However, in my opinion, when raising taxes for the rich, one should cut taxes for the poor. Otherwise, all these initiatives are only an attempt to replenish the budget with additional income under the guise of the need for economic stimulus.

From the point of view of the huge oil and gas budget deficit, which in 2013 is expected to reach 10.3% of GDP, Russia needs sources of additional revenue. Therefore, a tax increase is needed to replenish the budget. Given the fact that the collection of taxes is far from being perfect, the introduction of new taxes without reforming and modernizing the tax system in general will make no sense. In addition, the growth of the tax burden can lead to the growth of the share of the shadow business, which will reduce tax revenues even further.

One may agree upon the tax on real estate larger than 1,000 m2. However, the extra tax on cars with the performance of 200-250 horse powers is incorrect. First, the vehicle is already subject to the transport tax. Secondly, 200-250 horse powers is not such a large capacity. It corresponds to serial and widespread vehicles, so it can hardly be called "over-consumption." It is the market value that one should take into account.

The new tax could thus give a definite message for the rich. They may reduce their spending on luxury. Instead of spending money on another Bugatti, some will probably invest in the construction of a plant, for example.

Valentin Gridin

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Author`s name Dmitry Sudakov