Russia Delays Luxury Tax

March 15, 2012 Taxation in Russia

Russia Delays Luxury TaxMOSCOW – Russia will not be instating a luxury tax on high price properties, items and vehicles in the near future, despite the idea for such a tax having a wide backing among taxpayers in the country.

Russia’s long debated idea to instate a wealth tax has stalled again, as the Federal Tax Service (FTS) of Russia revealed that it does not support the currently proposed tax on luxury dwellings and automobiles, and has instead suggested a changes to property taxes and excise duties on cars.

The feasibility of implementing a wealth tax in Russia has been a subject of political and economic discussion for several years already, as a measure aimed at addressing the wide income inequalities seen in the country. Many proponents of wealth taxes claim that a levy on assets purchased or held by the richest people in the country would address the fact that Russia has a 13 percent flat rate of tax on personal incomes, and does not have a progressive tax system for individuals.

According to the Federal Tax Service, there are currently 416 taxpayers in Russia who earn in excess of RUB 1 billion. The Service’s estimate is based only on the personal incomes declared by taxpayers, and some experts believe that the number of high net worth individuals would be much higher if property, undeclared incomes, and other assets were also taken into account.

According to Forbes, in 2011 there were 97 Russian nationals with a net worth exceeding USD 1 billion, and their cumulative net worth was estimated to be more than USD 420 billion.

A recent survey conducted amongst Russian taxpayers showed that nearly 70 percent of all citizens back the idea of a tax on luxury items, and the number of supporters for the idea is at 75 percent amongst low and middle income earners. Even amongst the wealthy individuals in the country, the approval rating was found to be 48 percent. However, over 60 percent of the respondents did not think the tax would be effective, as the wealthy individuals, especially government officials, would find means to evade their obligations.

It was originally proposed that a wealth tax could have been levied at a rate 0f 0.3 percent to 5 percent on properties, and at a rate of 1 percent to 7 percent on aircrafts, yachts, and automobiles valued at more than RUB 3 million. However, suggestions are now being raised that the wide gap between the rich and poor in Russia can be addressed not through the implementation of a new tax, but by an improvement to the already instated excise duty system.

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