Administration of the tax system needs to be improved

Sergey Pepeliaev, the Managing Partner of Pepeliaev Group, spoke at a briefing dedicated to improving the administration of the tax system as a key way of making tax policy more efficient. The event was a part of the Sochi 2010 International Investment Forum.

Representatives of the Russian government consider that issues concerning tax administration are playing ever more of a significant role. In the new economic climate, there is a balancing act between the twin priorities of maintaining a stable budget system and of stimulating investment activity, so the Russian government is focusing its main attention on raising the quality of tax administration. This will enable it, at the same time, to ensure the maximum possible revenue for the public purse at all levels while also making tax payment procedures more convenient for business and the public alike.

Administration issues relating to payments by the general pubic drew particular attention at the briefing. The participants discussed the intended amendments to the Russian Tax Code scheduled for 2010 and 2011 which have been prepared by the working group of the Ministry of Economic Development and the Russian Tax Service. The proposals aim to simplify matters significantly for individual taxpayers and contain specific measures which are intended to maximise the amount of tax collected.

“One of the most important proposals is the one to introduce a single notification for the payment of property taxes,” considers Sergey Pepeliaev. Citizens will now be able to receive information in one go about all of their obligations to the budget, even when the same person owns real estate in areas administered by different tax inspectorates. Whereas, at the moment, every inspectorate submits a bill for facilities in “its” area, the suggestion is to make the local tax inspectorate where a taxpayer lives responsible for collecting all the information about what the person owns and then putting together an overall tax calculation.

“As well as being more convenient for the individuals concerned, the system will create various difficulties for tax inspectorates and the treasury. They will have to divide up the amount paid by the person in question and forward it to the local budgets. After all, real estate taxes should reach those regions were the property is actually located and not just the area where the taxpayer happens to be registered,” explains Mr. Pepeliaev.

The participants in the meeting thought that resolving this issue successfully would enhance the prospect of the personal income tax regime being successfully amended. Today, the tax reaches the budgets in the taxpayer’s place of work, since that is where the tax is withheld by the employer. This results in “dormitory areas”, where taxpayers actually live and where the sums gathered should actually be spent, being under-funded. The system has remained unchanged because the Ministry of Finance and Federal Tax Service doubt whether it is possible in technical terms to have payments allotted to the areas where the individuals actually live.

During the discussion of the action plan to improve administration for tax payers, the experts and specialists opposed the Federal Tax Service’s proposal that it should assume the role of carrying out state cadastral valuations of land and other real estate. The experts opposed such measures on the grounds that the tax authorities should play no role in shaping the tax base: if the tax authorities do take such a role, there is a risk that maximising tax revenues, rather than objectively reflecting economic reality, will be the priority.

The moderator of the forum was Sergey Belyakov, the Director of the Ministry of Economic Development’s Investment Policy and Public-Private Partnership Development Department. Among the other experts and representatives of executive bodies taking part were Sergey Shatalov, Deputy Secretary of State in the Ministry of Finance, Alexander Shokhin, the President of the Russian Industrialists’ and Manufacturers’ Union, Krasnodar Krai Senator Alexander Pochinok and Kirill Yankov, the Deputy Director of the Federal Tax Service.

The discussion touched on the key ways of improving tax administration, with the participants sharing their expectations for the reform of the tax collection system. All were agreed that the expert community should be involved at all stages in discussing and adopting new draft laws.