Socially fair improvement of taxation of income and property of individuals in the Russian Federation

Balynin Igor' Viktorovich ORCID: 0000-0002-5107-0784 PhD in Economics Associate Professor, Department of Public Finance, Faculty of Finance, Financial University under the Government of the Russian Federation 49 Leningradsky ave., Moscow, 125468, Russia igorbalynin@mail.ru Other publications by this author

Introduction

The relevance of the study of issues related to the taxation of income and property of individuals is beyond doubt, since personal income tax, transport tax, land tax and property tax of individuals are key sources of tax revenues for regional and local budgets. Thus, in 2023, over 6.5 trillion rubles were mobilized to regional and local budgets from the above sources. At the same time, on the one hand, the vast majority of the subjects of the Russian Federation and municipalities execute budgets with a deficit, the size of which it is possible to reduce by increasing revenues. On the other hand, there is a huge demand in society to ensure fairness in the taxation of income and property of individuals. The importance of building the tax system of the state on the principle of fairness was considered in the scientific works of V.G. Panskov ^[6,7].

It is necessary to agree with the conclusions of Melnikova N.P. and Tikhonova A.V. on the lack of social justice in the taxation of personal income within the framework of modern taxation architecture ^[5]. At the same time, according to the author of this article, the implementation of a progressive scale of taxation can be implemented without the use of a tax-free minimum (which is noted by the above-mentioned scientists as a mandatory attribute of progressive income taxation).

It should be noted that the problems associated with the taxation of personal income have also been considered in the context of ensuring the achievement of national development goals ^[4]. The importance of ensuring social justice in taxation was also noted in the Message of the President of Russia to the Federal Assembly of the Russian Federation in February 2024 [http://www.kremlin.ru/events/president/transcripts/73585 ].

The authors also raised issues of taxation of citizens' property in their scientific research: land tax ^[10], transport tax, tax on the property of individuals ^[2,8]. In the context of improving the quality of income administration ^[9] and digitalization of socio-economic processes, the possibilities of monitoring the completeness of taxpayers' payment of relevant mandatory payments are increasing ^[1].

In recent years, the issues of progressive taxation have been actively considered in foreign literature, both within the framework of ensuring the budgetary stability of public legal entities and in the context of the fairness of this approach to the collection of personal income tax ^[12-17]. Foreign literature has also paid attention to the development of property taxation: social and economic contexts ^[18-20].

Problem statement

As you know, since 2001, the Russian Federation has been using a proportional system of taxation of personal income (at a uniform rate of 13% for all), replacing the previously existing progressive procedure (from 12% to 30%). At the same time, since 2021, an element of progression has been included in it: income exceeding 5 million rubles is taxed at a rate of 15%.

The transport tax, being a regional tax, is regulated not only by federal legislation, but also by regional legislation. So, in particular, currently tax rates are determined by the Tax Code of the Russian Federation, but it is possible for regions to increase/decrease these rates by 10 times.

Land tax and personal property tax, being local taxes, are also regulated by municipal legal acts. In particular, for land tax, it is possible to set any rate values, but not exceeding those specified in the Tax Code of the Russian Federation. According to the property tax of individuals, actions of local governments are allowed to reset tax rates or increase them to 3 times the values specified in Article 406 of the Tax Code of the Russian Federation.

The purpose of the study is to substantiate recommendations for the socially fair modernization of taxation of income and property of individuals in the Russian Federation. Accordingly, the scientific novelty is associated with the recommendations developed by the author on socially equitable improvement of taxation of income and property of individuals in the Russian Federation, which meets the national development goals of the state for the period up to 2030 and the list of instructions for the implementation of the Message of the President of Russia to the Federal Assembly of the Russian Federation.

Socially fair modernization of personal income taxation

According to the author, in order to ensure a socially fair modernization of taxation of personal income, it seems necessary to introduce a progressive scale of taxation. Conceptually, there are 3 possible variants of such a progression:

- establishment of reduced rates for taxation of small amounts of income (for example, within the limits of the minimum wage);

- the introduction of increased rates to tax high amounts of income; 

- using a combination of the first and second approaches.

Under the current budget legislation, the introduction of a progressive scale of taxation with the establishment of tax rates below 13% for certain categories of payers will lead to a reduction in revenues for most budgets of the subjects of the Russian Federation and municipalities. This is due to the fact that, in accordance with section 2 of the Budget Code of the Russian Federation, income from the collection of this tax is credited specifically to regional and local budgets (13% of the personal income tax amount exceeding 650 thousand rubles is credited to the federal budget, relating to a part of the tax base exceeding 5 million rubles). Taking into account this fact, as well as taking into account the high level of social protection of poor citizens (including the increased growth rate of the minimum wage; for example, in 2024 it increased by almost 20%), it does not seem advisable to set reduced tax rates for low incomes. Therefore, it is more logical for people with low income to build an appropriate architecture of social protection measures, including an accelerated increase in the minimum wage.

In this regard, the author focuses on the approach of increasing tax rates to tax high incomes. An analysis of Rosstat data on the results of a survey conducted in April 2023 showed that over 50% of employees receive salaries of less than 50,000 rubles [https://rosstat.gov.ru/labour_costs ] (these values show slightly overestimated indicators for low-income citizens due to the fact that the survey is conducted by business entities without taking into account small businesses). In turn, Rosstat data on average wages show that in most regions of the Russian Federation this socio-economic indicator is less than 55,000 rubles [https://rosstat.gov.ru/labor_market_employment_salaries ]. At the same time, the median salary in the Russian Federation is 40,368 rubles [https://rosstat.gov.ru/labour_costs ]. There are no data in the regional context, but taking into account the fact that the median regional value of average wages is 54,318 rubles (which is 26.31% lower than the national average), the median salary in most subjects of the Russian Federation is less than 30,000 rubles. Taking into account all of the above, we suggest choosing 50,000 rubles as the salary after which it would be fair to start raising the tax rate. The following elements of this scale are presented in Table 1, indicating the budgetary effect of practical implementation (according to the author's estimates, it will amount to about 1 trillion rubles: 8,194.23 billion rubles - 7,256.11 billion rubles = 938.12 billion rubles).

Table 1 – The author's personal income tax scale and the budgetary effect of its implementation

Source: compiled and calculated by the author according to Rosstat, the Federal Tax Service of Russia and RBC [https://rosstat.gov.ru/labour_costs , https://rosstat.gov.ru/labor_market_employment_salaries , https://www.rbc.ru/economics/18/03/2024/65f4177b9a794755ca641354 , https://www.nalog.gov.ru/rn77 /].

 Note 1. For the first interval, a salary of 35,000 rubles was used (according to the results of the analysis of Rosstat data, the author found that this value is approximately the median in the specified interval).

Note 2. For the final interval, the value of Rosstat for the average salary in this group was used: 7,683,096.4 rubles per month.

Note 3. Currently, personal income tax is charged at a rate of 15% from the annual income of individuals exceeding 5 million rubles. 

Note 4. In the final row of column 7, the value is calculated based on the rate of 13% and the amount of personal income tax is added, projected to be received in 2024 [https://www.rbc.ru/economics/18/03/2024/65f4177b9a794755ca641354 ].

It is important to note the high prevalence in foreign practice of a multi-stage scale of progressive taxation of personal income (for example, in Austria, Germany, Luxembourg). According to the author, multistage, on the one hand, maximizes social justice, and, on the other hand, forms the prerequisites for a positive psychological perception when moving from a group with one income level to another. This is ensured primarily due to the small difference in the tax rate between neighboring groups. Therefore, according to the author's scale, unlike the countries mentioned above, it is only 1%. 

The analysis of Rosstat data showed that in 16 regions of the Russian Federation, the average salaries are higher than the same national average. Accordingly, the author considers it advisable to centralize the amount of personal income tax levied at increased tax rates in the federal budget, followed by the distribution of these funds to the budgets of the constituent entities of the Russian Federation in the form of inter-budgetary subsidies aimed at achieving the national development goals of the Russian Federation.

In order to ensure the labeling of income from personal income tax levied at the increased rates proposed by the author, the formation of prerequisites for additional state and public control over the use of these funds, as well as for additional prevention of tax payment integrity, the author considers it rational to form a special fund for spatial / spatial and social development (by analogy with what is currently formed from personal income tax collection at an increased rate of 15% – "Circle of goodness"). For example, it is possible to use these funds (part of these funds) annually as a source of financial support for special events within the framework of the thematic year. For example, if this fund is available this year, these funds (part of the funds) in honor of the Family year could be used to pay special benefits to large families.

It is important to note one of the periodically discussed proposals – the payment of personal income tax to the regional and local budgets not at the place of employment, but at the place of permanent registration of the taxpayer. The author of this article believes that the implementation of this initiative, firstly, is socially and economically unfair, since the subjects of the Russian Federation will be deprived of some of the funds, the formation of which is largely ensured by a competent and thoughtful socio-economic policy. Moreover, the fact of establishing a differentiation in income transfer depending on the place of permanent registration will create risks of infringement of rights in the employment of persons living in other subjects of the Russian Federation.

 Secondly, this creates prerequisites for a deterioration in the quality of forecasting the volume of revenues of regional and local budgets, and given the fact that personal income tax is a "revenue–generating" tax for them, this is fraught with consequences of reducing social support measures and economic growth in the most developed subjects of the Russian Federation and municipalities. Ultimately, these deteriorations will have a spiral effect on all public legal entities and, accordingly, will lead to a decrease in the quality of life and economic growth throughout the Russian Federation, which does not meet the national development goals set by the President of Russia [http://www.kremlin.ru/events/president/news/63728 ]. Thirdly, the existing approach motivates public law institutions to increase their revenue potential by stimulating the formation of additional jobs.

Taking into account the mechanism of levying an increased personal income tax at an increased rate of 15%, which has been worked out since 2021, when no declarations are required from a citizen, then it should definitely be left when applying a multi-stage progressive scale. This implies that in the case of employment with several employers, the amount of personal income tax at the end of the financial year is recalculated and the unpaid difference is payable by the citizen together with property taxes. 

In order to improve the tax culture, according to the author, it would be advisable to encourage citizens to submit tax returns proactively, provided they are filled out correctly from the 1st time and timely payment of all taxes. To do this, it is possible to use: a tool for small discounts to the amount of tax that requires payment, or a cashback mechanism to a single tax account, suggesting the possibility of using these funds in the future to financially ensure the fulfillment of their tax obligations.   

 Socially fair modernization of taxation of property of individuals

As noted above, citizens pay a number of property taxes: transport tax, land tax and personal property tax. In this regard, the author suggests making a number of adjustments. 

First, to consolidate the possibility of establishing authorized bodies of municipalities (in the cases provided for: cities of federal significance, the federal territory of Sirius) increased tax rates:

- land tax of 0.6% and 3% (with a coefficient of 2 of the current rates) for those land plots that are 2 and subsequent owned by the same owner;

- for the property tax of individuals of 0.6%, 4% and 1% (with a coefficient of 2 of the current maximum rates) for those objects of taxation on property that are 2 and subsequent owned by the same owner.

Thirdly, according to the author of this article, regions should be allowed to set transport tax rates 25 times higher than those given in Article 361 of the Tax Code of the Russian Federation in the presence of developed public transport (currently the possibilities are limited to 10 times the value). It is obvious that public transport in Moscow is developed at a high level and there is no objective need to use personal cars, and their availability should be considered as a luxury item. Accordingly, there are all objective prerequisites in Moscow to establish a higher level of transport taxation than in those public legal entities where public transport is poorly developed. This will simultaneously increase the amount of budget revenues of the city of Moscow from the collection of transport taxes and stimulate citizens to replace the use of private cars with public transport (thereby having a positive impact on the fight against traffic jams and the environmental situation). In turn, the authorized bodies of the subjects of the Russian Federation in this case will be further motivated in the development of the public transport network. More active use of public transport will have a positive impact not only on regional budget revenues, but also on federal budget revenues (for example, due to incoming VAT from fare payments).  

Fourthly, the author proposes to increase the current coefficients for vehicles worth more than 3 million rubles for transport tax, as well as to establish increased taxation for foreign cars (regardless of their cost, there should be an additional increasing coefficient; in the case of a cost over 3 million rubles, the corresponding product of the coefficients should be used). This measure will not only have a positive budgetary effect in the form of additional revenues to regional budgets, but will also stimulate some citizens to purchase Russian cars, which will be an important measure to support the domestic manufacturer.

Fifth, in order to improve driving culture and prevent violations, it is advisable to provide a 20% discount on transport tax for drivers who do not have a single violation during the financial year.  This, first of all, will reduce the number of violations on the roads and reduce deaths from accidents in road accidents.

Sixth, in order to take into account the rate of price growth, it is necessary to provide for an annual adjustment of base rates for transport tax at a level not lower than inflation (higher growth rates, according to the author, should be used for the most powerful vehicles). In the Tax Code of the Russian Federation, they are fixed in a fixed amount and, in fact, have not been adjusted since 2002. It is important to note that in 2010, tax rates were halved, and regions were given the right to increase them not by 5, but by 10 times (effective from 2011), i.e., in fact, the maximum possible tax rates remained unchanged.

Seventh, in order to ensure the balance of budgets of municipalities/subjects of the Russian Federation receiving subsidies to equalize budget provision, the maximum possible values of tax rates for regional and local taxes must be established on the territory of the relevant public legal entity, taking into account the increase coefficients provided for by the Tax Code of the Russian Federation.

Conclusion

Thus, the socially fair modernization of taxation of income and property of individuals is a widely discussed issue over a long period of time. The practical implementation of the proposals indicated in the text of the article on the modernization of taxation of income and property of individuals will ensure the implementation of the principle of social justice to a greater extent than is represented in the current tax architecture.

Moreover, the measures proposed by the author will have a positive budgetary effect in the amount of 1 trillion rubles, as well as a positive impact on the socio-economic development of the Russian Federation (including the spatial component), including the achievement of national goals set by the President of Russia until 2030, and in the instructions for the implementation of the Message of the President of Russia to the Federal Assembly of the Russian Federation Federation, held on February 29, 2024 [http://www.kremlin.ru/events/president/transcripts/73585 , http://kremlin.ru/acts/assignments/orders/73759 ].

Among the further areas of research within the framework of the stated topic, according to the author, the issues of taxation of income on deposits of individuals deserve special attention:

- assessment of the possibility of increasing the amount used to start taxing such income on deposits of pensioners and members of large families;

- ensuring the fairness of taxation of income upon receipt of interest on a deposit with a term of more than a year (especially for 3/5/10 years) at the end of the term.