Russian Government is forced to consider extraordinary solutions to solve the budget deficit, writes business daily Vedomosti. One of the ideas is to increase the VAT at the expense of social contributions. The measure would help the employers and motivate them to report wages instead of paying them under the table. Federal sources were unwilling to discuss exact figures and said that the idea, if accepted, wouldn’t be implemented before 2018.
Lowering social contributions is supposed to make Russian exports more competitive, while higher VAT would discourage imports. One Russian government official stated that the reduction in social contributions should be way bigger than 2-3 percentage points in order to make a difference. Other officials recommend corporate income tax breaks instead of lower contributions, but this would affect local government budgets that collect the respective taxes.
There’s no consensus on whether the aforementioned measure would motivate the companies to invest or simply pay out larger dividends. Increasing the VAT would cause the inflation to overshoot the target set by the Government. Russian Government officials and experts in favor of the measure refer to a studies performed in the EU, indicating an expected increase in BDP of 0.3-1%. The MMF recommended a similar measure for Greece. Those opposing the measure are doing so as a matter of principle – dabbling with taxes too much undermines the reliability of the system.