Skip to comments.Russian money-bags to deal with luxury tax in 2013
Posted on 12/15/2012 9:52:30 PM PST by CutePuppy
The tax on luxury will become reality for all Russians without exception next year. President Vladimir Putin reminded everyone of that in his annual Address to the Federal Assembly. According to experts, the new tax may send a definite message to wealthy citizens to redistribute their revenues.
The head of state said in his speech that the decision on the so-called luxury tax should be made in the first half of 2013. According to the official website of the President of the Russian Federation, one should not give up on the "flat" income tax scale, since the progressive taxation of citizens does not provide social justice. According to Putin, the introduction of progressive taxation will become a burden for millions of people with average incomes.
"If you start to analyze where it leads to, you'll see that that's the way it will be. There will be tax evasion and shortfall in the budget and the treasury. In this case, we will have shortages in the finance of the army, pensions and the public sector. Therefore, one should be very careful in this area," said Putin.
"We must act carefully, but what we can and must do is to tax the so-called prestigious, conspicuous consumption," Rosbalt quoted the President.
The discussions about the issue began in the beginning of the year. Deputy Minister of Economic Development, Stanislav Voskresensky, said back then that the luxury tax in 2013 could be introduced for real estate from 1,000 square meters.
According to Voskresensky, the number of one thousand square meters excludes middle class taxpayers. "Clearly, those having real estate of such square do not fall under the definition of middle classes. But the main thing is not to wait for the real estate tax to be introduced. A higher tax on personal property can be introduced already now," the official said.
According to him, there will not be many owners of such real estate. Hence, the number of taxpayers would [not] be large either. Transportation tax can provide for a big part of the luxury tax, but the amount will be small still.
Finance Minister Anton Siluanov said in mid-February that the luxury tax would most likely be levied through the taxation of large real estate and financial assets, as well as through increased rates of the vehicle tax on high-performance cars.
Anton Safonov, an analyst with Investkafe, expressed an opinion earlier this year that "the introduction of such a tax is quite a logical step, as it will indeed balance out the tax burden. However, in my opinion, when raising taxes for the rich, one should cut taxes for the poor. Otherwise, all these initiatives are only an attempt to replenish the budget with additional income under the guise of the need for economic stimulus.
From the point of view of the huge oil and gas budget deficit, which in 2013 is expected to reach 10.3% of GDP, Russia needs sources of additional revenue. Therefore, a tax increase is needed to replenish the budget. Given the fact that the collection of taxes is far from being perfect, the introduction of new taxes without reforming and modernizing the tax system in general will make no sense. In addition, the growth of the tax burden can lead to the growth of the share of the shadow business, which will reduce tax revenues even further.
One may agree upon the tax on real estate larger than 1,000 m2. However, the extra tax on cars with the performance of 200-250 horse powers is incorrect. First, the vehicle is already subject to the transport tax. Secondly, 200-250 horse powers is not such a large capacity. It corresponds to serial and widespread vehicles, so it can hardly be called "over-consumption." It is the market value that one should take into account.
The new tax could thus give a definite message for the rich. They may reduce their spending on luxury. Instead of spending money on another Bugatti, some will probably invest in the construction of a plant, for example.
What is it about capitalism that so many people don't [want to] understand? Then again, looking closer to home, what is it about socialism that so many people don't [want to] understand?
At least Putin and Russkies understand that "progressive" income tax code as a method for "social justice" is bad for everybody - it's complex, inefficient, punitive, often avoidable and counterproductive to optimizing receipts of actual government revenues.
Of course, then their "solution" predictably reverts to "wealth tax" plus "consumption tax" which, once introduced, tend to drift to society's lower income/possession rungs because "government needs revenue" and become quite regressive in later stages.
"Luxury tax" is just a euphemism for an early stage "wealth" / assets confiscation. When government runs out of typical sources of revenue, "wealth redistribution" inevitably follows, starting, as usual, with the "logic" of class warfare. "Social justice" (where have we heard this term before?) is, of course, another euphemism for confiscation and redistribution of income or property / assets.
Coming soon to a country "near you"?
Obama + Putin = comrades in class warfare... together at last.
To bring things into perspective: Russians pay some $30 annual property tax for a $200,000 estate today.
I don’t think they’ll ever reach regular US rates with all these new proposals.
I wouldn’t call a $200,000 house in Russia an “estate.”
That’s because real estate taxes have never been a [major] source of government revenue in Russia.
In 2001 they had a tax reform which replaced a scale of progressive marginal taxes (12%, 20% and 30%) with a flat income tax of 13%. Which was deemed a huge success, since the simplified collection, increased wages and fewer incentives to earn money elsewhere (in other countries or in “shadow economy”) increased the revenue by 25%+ and revenue-to-GDP increased by 20%.
But Putin wasted a lot of time and did not do a good job diversifying the economy, instead preferring to consolidate and grab some control over the traditional Russian industries - metallurgy and commodities, like oil and gas for which he had “shovel-ready” markets of Eastern Europe and many of the former Soviet Union states.
Few years ago it was estimated that Russia needs oil price of $120 per barrel to be able to run budgets without deficits. And with the price of oil around $80/bbl and price of natural gas collapsing in recent years, they find themselves without other reliable sources of revenue, so they are starting to tap the “wealth” and “conspicuous” consumption, initially of good old “fat-cats” / “millionaires and billionaires” / “1 percent” using class warfare to get the camel’s nose under the tent of broadening of future revenue stream.
As article point out, there aren’t many estates eligible for the “luxury tax” right now, but that’s the idea of the entry point of new tax proposal, similar to the way Social Security tax rate was initially set at 1%. But they (unlike in many Western countries) recognise the pitfalls and inequity of the progressive income tax, but also can’t really raise the flat rate on everybody, so it’s back to good old class warfare.
Just like Obama’s “tax on wealthiest 1%” became “income tax on those with $200K” (starting higher/lower is negotiating point, and allows for a claim of “winning” / “saving face” by the other side) these tend to transform and grow.
I imagine that depends on your location.
In Moscow, an apartment can run more than the highest real estate in New York, but there is plenty of land in Siberia.
True. In the south of Russia, where I live, $200,000 will get you a well built starter home. For $100,000 you would get a “tear down.” That is, you buy the home for the property. The house would most likely have an outhouse.
Putin would be wise to provide better opportunities to the wealthy in redirecting their investments to better help Russia.
In the US, for example, are tax-free municipal bonds, which are a huge help to local and regional government, so they aren’t as clutching of national resources.
In the case of Russia, Putin could start a “gold rush” in development decentralized from Moscow. Basically tax incentives to build cities somewhere else. As part of the deal, the developers would want to bring in business and lots of people to buy what they built.
Tax-free status of the munis may be in a danger zone now; first because high profile defaults (Compton, San Bernardino, Jefferson County, Prichard, about 300 smaller ones...) undermined confidence in munis a a "safe" investment; second, limits on tax-exemption of munis is under consideration at the federal level (which would reduce or practically destroy the values of muni bonds).
Which may not be an altogether a horrible thing, considering how some state and muni bonds are misused to justify high debt loads as a pretext for raising taxes later... but that's a different subject. (Bottom Lines: No matter who wins election, tax-exempt status of municipal bonds may be in danger - PoAC, by Kevin Post, 2012 October 28)
Putin would be wise to provide better opportunities to the wealthy in redirecting their investments...
One would think that he would have done more to diversify the economy from reliance on commodity, considering his "seriously" talking about it, but it was all talk and no action. Whatever other industries, particularly technology and Internet, sprung up in Russia, it happened without significant help from the state.
Often, the investment came from foreign investors and companies (mostly, from the U.S.) looking for outsourcing or "ground floor" opportunities in Russia, Ukraine, Belarus or Moldova.
In the case of Russia, Putin could start a "gold rush" in development decentralized from Moscow. Basically tax incentives to build cities somewhere else. As part of the deal, the developers would want to bring in business and lots of people to buy what they built.
Essentially, the "Enterprise Zones" that Jack Kemp advocated and helped put in place; in Russian history Peter the Great did something similar, building entire cities, though not necessarily with the idea of the peripheral empowerment.
The key word here is "decentralized" - that's exactly the opposite of what Putin (and the comrades of his ilk everywhere) was interested in; they are interested in more centralized control over chosen industries.
In that sense Putin is more like Ivan the Terrible (Ivan Grozny), not the Peter the Great.