Publication: Monitor Volume: 6 Issue: 104

Government officials in Moscow yesterday further outlined their tax reform plans, announcing that they will make up for cuts in the income and payroll taxes, and the elimination of taxes on turnover, by sharply increasing excises on gasoline and tobacco. Prime Minister Mikhail Kasyanov told a cabinet meeting that gasoline excises will increase six times and tobacco excises double. The government will also raise profit taxes from 30 percent to 35 percent and increase taxes for owners of luxury cars. Deputy Prime Minister Viktor Khristenko denied yesterday that the rise in gasoline excises would lead to a significant rise in prices at the pump. On the other hand, Russian agencies cited the government itself as calculating that the gasoline-tax increase could raise gasoline prices 28-30 percent. On the other hand, Deputy Prime Minister Aleksei Kudrin, who is also finance minister, predicted that the rise in gasoline taxes would have no significant effect on the overall inflation rate. Kudrin said that the government’s plan to raise gasoline excises would be introduced into the State Duma as part of the amendments to the second half of the tax code. While Russians pay lower prices for both gasoline and tobacco products than Americans–and much lower prices than West Europeans–the increase in levies on gasoline and tobacco, which are easier to collect and harder to evade, are likely to be unpopular among ordinary Russians. This means the increases might fail to win Duma approval (Russian agencies, May 25).

At the same time, the government is introducing a flat income tax rate of 13 percent to replace the current progressive income tax, which ranges from 12 percent to 30 percent. German Gref, the new economics and trade minister and the author of a ten-year Kremlin plan to reform and develop the country, said the introduction of a flat income tax rate was “key to tax reform.” The government’s aim is to lower the overall tax burden from 41 percent of gross domestic product to 35-36 percent (Moscow Times, May 26; Russian agencies, May 25). Kasyanov yesterday sent an eleven-page document to the State Duma, outlining the basic principles and goals of tax reform, including a 2001 budget which will have no deficit spending and an eventual removal of the tax burden on businesses in order to stimulate economic growth. The government is hoping to achieve a 4-5 percent growth rate next year (Vedomosti, May 26).