CC BY
6DOI: 10.12731/2070-7568-2014-5-14 UDC 336.2
REVISITING THE REAL TAX BURDEN ON TAXPAYERS
Tsokova V.A.
The article analyses the transformation of principal Russian revenue-generating tax rates in connection with tax base. Tax rate does not reflect the real tax burden on a taxpayer. Tax rate should be rated in connection with tax base. As, for example VAT rate of 18% cannot indicate the level of taxation.
Purpose. Determination of the real tax burden on the taxpayer.
Methodology. For the analysis, the author used the axiomatic method and the method of analogy with which we study the interaction of theory and practice tax calculation and collection of taxes.
Results. In the process, concluded that the distort of personal income tax, excise duties and VAT tax bases results in the matter-of-fact overstatement of tax burden on Russian business, it also motivates the use of illegal accounting schemes and retard business activity in Russia.
Practical implications. The practical significance of this study lies in the fact that the resulting theoretical material can be used for the improvement of the legislative framework in the field of taxation.
Keywords: tax system; tax; tax rate; tax base; tax burden;
VAT; income tax; personal income tax.
The formation of the modern Russian tax system, which effectiveness is essential for dynamic country development, was rather difficult. This fact is testified by the extremely frequent for the economy, especially for the reforming one, changes in Tax Law, reorganization and transformation of the governing bodies system (merger and de-merger of Economy Ministry and Finance Ministry of Russian Federation, formation of the Federal Tax Service of Russia), frequent changes of Russian Finance Ministers (eight ministers since early 1990s to the mid-2000s).
Tax is a key element of a tax system. Every tax, constituting tax system, can be viewed as a separate system, including different elements (rate, taxable base, object, etc.). It should be noted that even the elements of a tax can be viewed as a system. For example, such tax element as rate, usually has several kinds.
We are going to study the dynamic of changes of the tax system, levies and duties of Russian Federation. For this purpose we will analyze the changes of major revenue-generating tax rates and study the elements of their tax base, as only after revealing the structural links between these elements, government can coordinate them in order to decrease or increase the tax burden on taxpayers.
The transformation of tax rates of given taxes is presented in table 1.
Table 1
Changes in tax rates of major Russian revenue-generating taxes*
Tax 1992 2001 2013
Tax rate %
VAT 0; 15; 28 0; 10; 20 0; 10; 18
Duties от 5 ^ 90 5; 15; 30 fix tax rate
Personal income text 12; 20; 30; 40 9; 13; 30; 35 9; 13; 30; 35
Company tax 35; 38 24 20
Assets tax - 2,2 2,2
Land tax fix tax rate 0,3; 1,5 0,3; 1,5
Individual property tax от 0,1 ^ 13,6 0,1; 0,3; 2 0,1; 0,3; 2
*Author's study on the basis of Tax Code of Russian Federation.
The table shows that tax rates of major revenue-generating taxes, such as VAT, duties, corporate tax, individual property tax have been reduced since the beginning of economic changes. Personal income tax rates have been also reduced insignificantly. Land tax and individual property tax rates introduced in 01/01/2001 have been remained unaltered. Thus, the measures taken to reduce tax rates in our country, as well as reducing the number of taxes, contributed to reducing tax burden on taxpayers , both private persons and legal entities.
The size of tax rate itself cannot be the main informative source of real tax burden on an enterprise or a private person. For this purpose, the author suggests to study the rate in connection with tax base. Tax base data increase the opportunity to analyze the real tax burden on taxpayers in complex (see table 2).
Table 2
Tax bases for tax calculation in Russian Federation*
№ Tax Tax base
1. Income tax Money income
2. Personal income text Taxpayer money income or in-kind income
3. VAT on goods manufactured in Russia Cost of goods and services including insurance payments and depreciation of fixed assets and intangible assets + duties on excisable goods
4. VAT on imported goods VAT = (custom value +custom duties+ duties) r
5. Duties on goods manufactured in Russia Volume or cost of sold goods depending on the kind of rate
6. Duties on imported goods In case of fixed rates, the volume comes in in-kind. In case of ad-valorem rates, then: Duties = (custom value + custom duties) r
7. Water tax Water volume, taken from water body
8. Mineral production tax Cost of extracted mineral resources, except coal, petrol, natural gas, etc. (for them -the number of extracted mineral resources in in-kind)
9. Unified agricultural tax Money income reduced on the income-related expenses
10. Simplified tax system Money income reduced on the income-related expenses
11. Transport tax Engine capacity in h.p.
12. Corporate property tax Average annual value of property
13. Land tax Cadastral value of land
*Author's study on the basis of Tax Code of Russian Federation.
On the basis of table 2 the author thinks it is important to point out the following things.
First of all, the issue is that there is a contradiction between the economic nature of VAT and the determination of VAT tax base. Cost of goods and cost of production, is a taxable base of VAT, and as we know, in accordance with calculations (costing) should include insurance payments and cost of depreciation of fixed assets and intangible assets, which in fact, contain elements that cannot be imposed taxes on. Taxable VAT base of excisable goods includes the cost of excise duty to be paid to the budget. Taxable base of VAT, collected when importing goods on the territory of Customs Union of Belarus, Kazakhstan and Russia, includes two more taxes - custom duty and excise duty.
The author of the article thinks that the reluctance to define added value as an object of taxation has led to the wrong definition of a tax rate and, consequently to the wrong identification of a taxpayer of added value. Besides, taxpayer is levied with a tax, even when his business activity creates added value neither legally nor economically. In fact it means VAT levy on a higher effective tax rate than the one stated in legislation.
Failure to follow symmetry principle and refusal of using a concept of imposing added value have lead to the wrong interpretation and distortion of an idea of tax source of added value. Legal rules art. 170 and 172 of Russian Tax Code have roughly distorted the economic concept of tax in terms of identifying its sources. As a result the taxation rules that identify the tax sources in case of abatement of VAT of special categories of goods (or activities) and abatement of tax
assessment for special groups of taxpayers - subjects. There are also some inconsistencies between some statements of Chapter 21 «Value Added Tax» of Russian Tax Code and Section VIII.1 (Chapters 26.126.5) «Special taxation frameworks».
If one will follow the economic logic in identifying tax source of VAT, then, the author thinks, the following rules should be obeyed. Input VAT must be:
- taken as an offset on goods that will be charged afterwards);
- returned (on goods, use to carry operations with goods, not charged with this tax);
- be added to the cost (for «consumer good» as well as for goods not charged with income tax as expenses are not connected with getting income).
Disregarding the economic essence of VAT, to our mind, leads to a higher VAT rates, then the ones stated in Law, and this leads to an extra cash retirement from gross revenue. The reasons mentioned above evidence that it is high time to introduce tax-law changes, aimed at elimination of «asymmetry» between tax deductions and corresponding tax levies, i.e.:
1. In order to eliminate the procedures that undermine the taxpayer's financial principles, the concept of «paid tax» should be cancelled. The corporate activity should not result in incorrect withdrawal of financial assets from turnover. We should return concept when added value is an object of taxation. This will lead to changes of Tax Law art. 170 and the same, which define the sources of input tax, as well as
exclusion of all the standards, changing the size of a tax base, in comparison with monetary expression stated by the Law of taxation object. The standards which oblige to charge and pay tax when the taxation object is missing (VAT of advance payments) should also be abolished. Besides such terms as the moment of tax base definition, moment of sale, property right and separate accounting and other, should be clearly determined.
2. To comply with special tax regimes the rules should be introduced which will shift the tax from non-VAT subjects on to the further subjects of tax, but only if the acquired goods are not used for consuming and are not qualified for tax relief [7, p. 68].
Another problem that we should pay special attention at is that tax bases of VAT and income tax are unbalanced. Incorrect tax base of an income tax can result in mistakes when calculating the income tax, which base according to Russian Tax Code art. 274 (see table 2) comes in monetary terms. Income is nothing else, but the difference between price (income from sale) and accounting expense. In fact, accounting expense is an account cost, i.e. wage and social expenditures; material expenses (fuel, raw materials, constituent parts, etc.); depreciation; other expenses (banking commission, credit interest, rental payments, etc.). Thus, distortion of a VAT concept in Russian lawmaking results in incorrect calculations of an income tax. We assume that, this hidden tax form, takes 25% - 30 % of taxpayers income.
Apart from VAT and income tax, companies pay another taxes and obligatory payments, i.e. legal entities are tax agents in terms of personal income taxes and insurance payments. Tax base of a personal income tax (see table 2) consists of taxpayer's income: he gets money and in-kind benefits. Insurance unit is the amount of insurance benefits and other bonuses [2]. In other words, salary fund is a base for personal income tax charges as well as insurance payments. From this point of view, it is interesting to note, that the Net pay the employee gets, does not include personal income tax (it has been withdrawn), but the insurance payments are charged on the total sum, which includes personal income tax.
Thus, aggregate payments in budget and non-budgetary funds withdraw over 30-40% of taxpayer's income. According to the modern global taxpaying background, the presented numbers turn out to be the limit of tax burden, and bigger numbers can remove incentives for business activity and legal businesses start using illegal accounting schemes for taxpaying.
On the whole, we would like to point out that the modern Russian tax system includes optimal amount of taxes. However, the distort of personal income tax, excise duties and VAT tax bases results in the matter-of-fact overstatement of tax burden on Russian business, it also motivates the use of illegal accounting schemes and retard business activity in Russia. Besides, these downsides limit foreign investments in Russian economy; cause fears with foreign and Russian businessmen to develop business in Russian regions, thus not only businessmen suffer losses but consumers as well, as they have no choice of goods, services, etc.
References
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2. FZ № 212-FZ ot 24.07.2009 «O strahovyh vznosah v PF RF, FSS RF, FFOMS» [Federal Law № 212-FZ of 24.07.2009 «On Insurance Contributions to the Pension Fund of the Russian Federation, FSS, FFOMS»].
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nykh platezhey [Value-added tax system of customs duties]. -Vladikavkaz, 2006. P. 158.
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DATA ABOUT THE AUTHOR
Tsokova Viktoria Aleksandrovna, Associate Professor of chair accounting and auditing, PhD, Associate Professor
North Caucasian Institute of Mining and Metallurgy (State Technological University)
44, Nikolayev str., Vladikavkaz, North Ossetia-Alania, 362021, Russia
vika_halina@mail.ru
