Friday, November 28, 2008

The Flat Tax at Work in Russia: Year Four, January-June 2004

July 19, 2004

By Alvin Rabushka

The Ministry of Taxation of the Russian Federation has reported the taxes and fees collected for the period January-June 2004. The data show that the 13% flat tax on personal income continues to achieve very positive results.

During January-June 2004, the Ministry of Taxation collected 252.4 billion rubles ($1 = R29.1) in personal income tax receipts, an increase of 27.7% over the comparable period in 2003. After adjusting for annualized inflation of about 11-12% in the first half of 2003, personal income tax revenue rose at an annualized real rate of about 16% in the first half of 2004 as against the same period in 2003. This growth builds on real ruble revenue increases of 25.2% in 2001, 24.6% in 2002, and 15.2% in 2003. If real ruble revenues rise at about 16% for all of 2004, total real receipts from the personal income tax will have more doubled over four years—despite a reduction in the top rate from 30% in 1999 to 13%. (See “The Flat Tax at Work in Russia: Year Three.”)

The 27.7% nominal growth in personal income tax receipts continues to outpace the overall rise in taxes and fees collected by the Ministry of Finance, which grew by a less robust 17.9% for January-June 2004 compared with the same period in 2003. The 13% flat tax on personal income has steadily grown in importance as source of revenue during the past three-and-a-half years.

(Angela and Diana Kniazeva, graduate students in the Department of Economics, Stern School of Business, New York University, kindly provided research assistance for the preparation of this article)

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