Russia Gov’t Submits VAT Hike Draft to Duma

The Russian government submitted a draft law on raising valued-added tax from 18% to 20% to the State Duma, lower house of parliament, the press service of the Russian government said.

“Dmitry Medvedev signed an order to submit draft laws on changes in the legislation on taxes and fees to the State Duma,” Tass reported.

The finance ministry, which prepared a draft law on raising VAT, the tax hike will allow the federal budget to receive additional 620 billion rubles ($9.8 billion) a year beginning in 2019.

It is expected that VAT reliefs will be retained. They imply reduced tax rates for food, children’s goods, medical goods, as well as zero rates for domestic interregional air transport.

The authorities admitted that an increase in VAT could accelerate inflation.

On Friday, the Bank of Russia reported that the planned tax increase prompted it to raise its inflationary forecast and to keep the key rate at the current level of 7.25%.

The VAT bill is part of a large-scale tax reform. It implies freezing social payments at the level of 30%, a tax maneuver in the oil industry and the cancellation of

tax on movables, as well as abandoning the tax regime for the consolidated group of taxpayers.

On Saturday, the cabinet also submitted a bill on reducing the aggregate tariff of insurance premiums to state off-budget funds from 34 to 30% and on setting the tariff of insurance contributions to the Pension Fund at a rate of 22%.

Additional funds raised through increasing the VAT rate will be spent on social needs and improvement of public services, Russia’s First Deputy Prime Minister and Finance Minister Anton Siluanov said Saturday.

“Those funds will be invested primarily in those social sectors, and we are set to evidence a new quality of public services in those sectors in a six-year period,” he said, adding that “a particular emphasis will be made on healthcare.”

Meanwhile, Russia’s government wants to raise the retirement age for both men and women and to increase VAT, unpopular measures it hopes will ease pressure on state finances, Prime Minister Dmitry Medvedev said on Thursday.

However, Medvedev said that the government, which President Valdimir Putin reappointed last month after his own reelection for another six-year term, was now facing a shrinking workforce and had to act to protect the budget.