Russian Tax System And Economic Growth: Analysis And Comparative Study

LAW5230 Taxation Law

Russian Taxation Law and Economic Growth

The implementation of tax policy in a state is propagated by the government due to the choices it makes as to the taxes it should charge its citizens thus covered in both the micro economics and the macroeconomics fields. In the macroeconomics part, taxation policy concerns the entire amount of taxes that is supposed to be collected to affect the level of economic activities in nation hence covers the aspect of fiscal policy in details. Furthermore, the micro economics aspect as well talks about the issue of fairness in accordance to the type of people that should be taxed and a locative efficiency. Similarly, implementation of the tax policy has at times been a difficult business since there will be other concerned parties that will support the initiative and the other will reject the proposal by all means despite the fact that it’s for the better part of the countries wellbeing. On the hand, overreliance on the consumption taxes and there is no avenue of the continuous personal income tax in many nations neutralizes the benefits that the poor working class receive from refundable low income tax credits. Moreover, in order to have a strong, sustained and inclusive economic development, a reliable and good functioning taxation policy system must be put in place since the revenue fund on the administrative infrastructure and the public expenditure depends solemnly on the cost tax collected in the nation. This essay is therefore set to critically analyze the Russian taxation law, express its implication on economic growth and development, and discuss the relevant corrective measures that can make the policy effective in promoting economic development while comparing the law with the principles of the other nations across the globe.

Russian economic growth has changed more rapidly and unexpectedly due to the implementation of the tax policy^{. When} Putin Vladimir was elected as the Russian people’s president, the country was really suffering in the state of bankruptcy with plenty of depts. Russia had obtained a virtual economic development and it becomes one of the huge creditors of the U.S. debt across the globe.

In the beginning of 2009, the MET published a strategy that portrays Russian 2020 economic development goals and if the goals are to be put into actions or transformed to reality then Russia would lead the economic stability in Europe and the fifth largest in the across the globe being closely followed by the US, India, China, and Japan. Despite the fact that the Russian taxation law has enhanced economic growth and development in the country, several queries circumnavigate the rigidity of some of the policies in Russia. The government of Russia is pursuing policies that are likely to constrain the rate of growth and thus when one closely examines its economy then there is need to put into consideration the current growth trends. Russia has never been more successful or integrated in the global economy like in the current state thus an achievement and a positive development in the in the Russian federation since the collapse of the soviet republics.

Challenges Facing Russian Taxation Law

Similarly, due to the stunning economic growth that has been propagated by the rising prices of commodity and the cheap foreign credit, has attracted Russia an attractive seat of foreign investment. The Organization for Economic Co- operation and Development (OECD) focuses on establishing stable laws for better future life by initiating a platform that collects and share ideas, knowledge and experiences thus finding solutions for common problems that is facing majority of the countries. OECD has better policies that provide an outline of the key challenges that are being encountered by individual states and the primary principle recommendation to curb them regarding the taxation operations.

Russia has made rapid development in minimizing the poverty levels and competing the income level countries thus majority of the citizens have good paying jobs thus improving their living standards. It is fundamental to realize the fact that the current development of the country relies fundamentally on the revenue generated from taxation. Similarly, improvement in the standards of living requires a low dependency on the natural resources, economy modernization and ensuring a collaborative and reliable economic growth. Russia possess plenty assets that it can depend on them to bring about of low debt, employee participation and numerous energy resources since it has potential in areas like space technology and other untapped potentials in the economy sector. Nevertheless, Russia face major policy challenges that may include: financial sector, competition, fiscal framework, business framework, innovation, governance of the public enterprise, employment, social policies, health, education, energy, green policies and agriculture. Additionally, OECD focuses on creating the relationship and tightening the bond with Russia through accessing process that facilitate in making the Russian economy modern, vibrant and inclusive.

Russian economy tends to be modernized hence requires more effort to cover for it to attain the living standards of the most advanced market oriented countries despite its tremendous improvement in the economic growth in the previous years. In order for it to narrow the gap, it has to modernize the economy and reduce the rate of dependency of revenues from natural resource extraction and thus focus on having abroad based growth that is sustainable. The bigger crisis of the Russian taxation law revolves around emphasizing on the taxation of the natural resources. Regarding such an ideology, Russia has potential to use its citizen’s great potential and enhance economic growth beyond its natural resource utilization by reshaping the taxation policy. A typical example of countries with stable taxation policies that cover wide areas of citizen’s potential to generate revenue for economic development is the United States of America. Russia would be more effective if it applies such principles in the taxation law. 

Russians relative potential include a very low public debt, high labor force participation and great population of the high school students going for other great levels of education compared to the other OECD countries. Russia has great potential in space technology and the other hand its economy exhibits extreme inequality, poor health, low productive levels, mixed educational results and poor health and environmental outcomes that is greatly accompanied by business environment that is greatly undermined by the weak rule of law and corruption levels in the state. Therefore, it would be relevant to reshape the taxation law of the country such that underdeveloped aspects are under taxed but adequately funded to allow for economic development uniformity in the entire nation. Those in power often emphasize on the benefits modernizing and diversifying the economy by lowering the budgetary dependency rate on oil and gas revenues. Seemingly, monetary regulations have brought systematic reduction in the inflation for the last 12 years hence improving the business atmosphere and economic performance by stabilizing regulations, reducing the rate of corruption and expanding the competition levels through a less bureaucratic product market policy.

Comparative Study with Other Nations

Effective research in the tax administration provides natural context of cross disciplinary study as it functions at the intersection of several disciplines. There are also significant benefits on the research outputs and the impacts thus providing developing frame works and measure of good tax administration practice. On the hand monitoring, evaluation of program effectiveness and risk assessment are one of the effective procedures to ensure that the ethics and the rule of law are followed. This is practically done by monitoring and auditing to realize criminal operations or the individuals that are not compliant to the tax policies in the state. Periodically the risk assessment is done to recognize criminal conduct and to establish publicize strategies that allows anonymous and a very confidential reporting that will facilitate the agents and employees to report or sort for assistance on the issue pertaining criminal conduct without the retaliation feeling.

They are regulatory standards that will be implemented and enforced on regular basis through a well-publicized and accessible disciplinary measures and guidelines. There is response that will be put into place to detect criminal offenses and corrective action plans have already been put into place through appropriate disciplinary mechanism to prevent similar occurrence.The criminal conducts are supposed to be conveyed and the organizations should work closely with the statutory administrative to ensure justice is delivered and no individual should evade paying taxes despite the authority or influence he has with the citizens or the government in place. Thus the compliance program should be amended in order to prevent any criminal act from erupting.

The Russian government has put more efforts and embarked on forming regulatory enforcement systems and business inspections devices to improve the market surveillance outcome while moving away from unnecessary regulations, rent seeking behavior and inefficient enforcement. It is important to do the business reports in order to simplify and streamline business processes to avoid any form of malpractice that may be going on. Similarly, the introduction of electronic services has reduced the levels of in person interaction between businesses and government agencies which intern will reduce the possible possibility for corruption and thus focus on increasing the level of efficiency and transparency in business services.

Some of the challenges in the Russian taxation law have been addressed within the Russian Taxation Bill. The Russian government has handed over to the State of Duma a bill that amends chapters of Russian tax code that outlines special tax regime that involves the Simplified Taxation System, Patent Taxation System and Imputed Income Tax. Moreover, the bill has to undergo the standard legislative process for it to be effective. In the Russia government system, the power of legislative comprise of the entities and representative authorities of the municipal entities which need to be broadened. Those authorities in place independently determine the variety of entrepreneur activities to which Special Tax regime may be implemented by establishing tax benefits, tax rates and the thresholds.

This kind of taxation system in Russia is simplified in way that when the amount of income is taxed, the tax rate could drop from 6% to 1% and for the tax payers the difference between the income and the expenditure will be 5% -15% that will be constant. Freshly registered individuals providing consumer services will be paying taxes for the first2 years of engaging in business since the law in place only provides beneficiaries to those individuals that are involved in the production, social and scientific activities.

Effective Tax Administration

Finally, for Imputed Income Tax, the legislative authority of Moscow Sevastpol and St Peterburg will have the authority and mandate to reduce the current rate of tax from 15% – 7.⁵% on income imputed. Nevertheless, the patent taxation system has a series of activities in the extension list that may include software development, software adaptation, computer repair, waste disposal, production of milk and bread. When considering the case of simplified taxation system, the bill supports the newly- registered sole proprietors who provide consumer services not to pay taxes for the first two years hence several small businesses will get a lot of tax benefits compared to the large business operatives. Such a strategy is very significant in promoting the development of the infant companies in the country. The strategy also helps to enhance competition rather than promoting monopoly that may hinder the entry of new entrants in the country. In so doing, the development of the industrial sector and infrastructure of the economy is enhanced through the expanded business operation.

Usually, foreign investors are exploitative to the economic development of an economy as they carry their revenues back to the home countries. Therefore, the ideology of overtaxing the huge companies in the country focus majorly on the foreign huge firms which should contribute fully to the economic development of the country by compensating for the utilization of the available resources. The funds raised from taxation of such companies are further utilized in the economic development of the nation.

Russia has been on the run of building modern fiscal institutions that has basically been formed tax system. The annual results have been over the last twelve years and the public financial assets have greatly exceeded the gross public debt as compared to the most OECD countries. Nevertheless, the fiscal policy has continually encountered a lot of major challenges and shortages that is connected to the Russian natural resource wealth, real exchange rate volatility and notably commodity of prices. The challenge has been intergenerational equity, pro-growth and social spending and optimal balance between fiscal stability. The additional challenge rendered in the fiscal policy is the uneven distribution of wealth and extremely high levels of income inequality that have slightly reduced due to tax and benefit systems.

The outcome of fiscal policy improved tremendously in the past ten years as compared to the 1998 period that leads to the government partial collapse. These has been reflected by the rising prices of oil and the initial commitment to restrain the amount of expenditure that have no fundamental gains and this aspect has been seconded by the institutional mechanism that manages wealth resource. Russia has put into place associations that promote annual policy and the primary features of budgetary formulation that has OECD best practice interest. Measures that have been put in place for the three-year budget are: fiscal reporting, macroeconomics forecasting, limiting the scope by parliament budgetary amendments and financial risking. Therefore, the current efforts undertaken by Russia regarding the fiscal policy concept are promising while interpreting the ideology of taxation law in correlation with the economic growth and development of the nation. 

Russia has made great improvements in reforming the taxation structure to the effectiveness of tax assortment thus the tax policies have been expanded, compliance improved and the rates cut the tax burden in the Russian organizations is modest but the inefficiencies still remain hence oil and gas tax charges should be adjusted to seizure the economic rents without having harm on the incentives for development and exploration. There is low tax on the corporate profits due to the 20% cut, but any possibility of further reduction cannot be ruled out despite that indirect taxation on products that can be increased

The Russian taxation law can also be made more effective in enhancing economic growth and development through the execution of the OECD recommendation. The major OECD recommendation include: further reformation of the taxation system by enlightening the rate of taxation of rents from the natural resource utilization hence shifts the tax charges from labor income to indirect taxation and decreasing the entire framework and workability. Similarly, it forms a broad and robust agreement around the freshly formed prices of oil to protect the economy from price inflation. Furthermore, there will be need to increase budget limpidity to avoid eruption of additional financial plans and support the executions of performance budget reform. On the other hand, it addresses the weakness or failure in the municipal and regional funding regimes that promote the answerability for economic development and regional levels making federal annual relations more rule based.

Russia can easily be compared to other nations regarding the taxation law concept following the aspect of the economic growth due taxation. Russia is ranked top 20 worldwide on these two indicators that include: property registration and enforcing contracts thus it takes less than year to settle commercial dispute as compared to the average timeline of 637 days in other countries. Nonetheless, it takes 15 days to register for a property transfer that is three days less than the average duration of 51 days. Additionally, it’s most reliable on the electricity transfer and transparency of tariffs’ hence Russia faces does not have challenge with the power supply or any kind power shortage thus it has been listed among the countries with the leading economies such as Korea, Norway, Netherlands New Zealand and Germany. Russia also performs well among the leading countries in quality of land registration system. Russian legislation limits the ability of non- Russian investors to take part in the companies that have strategic value to Russia.

Seemingly the main sources of the Russian taxation law includes the following : the general principle of taxation and fees, the system of taxes and fees collected for the state budget ,regional laws on the tax rates and the levies, the tax authorities in Russia take charge of the positions that have been expressed in the ministry of finance letters and the foreign investment law that has the platform of providing guarantees and preferences , several terms of the Russian tax have been composed from the courts

 Tax audit is the core method that has been applied by the tax authorities to control the reporting’s, calculates the tax rate and pays the tax. They are two major types of tax audits that include the field tax audit and the desk tax audit that is done in the tax authority premises on the basis of tax returns that have been filed by the taxpayers. On the hand, field tax audit is conducted at the tax payers residential and the duration is not supposed to exceed more than two months although in emergency occasions or cases it can be extended to 6 months.

In conclusion, the current taxation law in Russia has proven to be more effective in enhancing economic growth and development in the country. The ranking system of different countries across the globe presents the Russian economic growth rate to be competitive enough in the world market. However, the discrepancies arise from a few challenges of rigidity and deficiencies in the taxation law. This essay is important as it addresses most of the gaps in the Russian taxation law while emphasizing on the corrective actions to be undertaken. Nevertheless, the current state of the Russian taxation law is so impressive to be adopted by most of the developing nations across the globe.   

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