Difficult Choice: Which Taxes to Raise?
The Russian delegates at the economic forum in Davos carried their tax debate all the way to the event in Switzerland. The government, which needs to raise taxes to fulfill its commitments, promised to publish proposals on the tax system this spring.
New insurance premiums, to be introduced in 2014, should help cut the Pension Fund deficit. Energy and personal property taxes are being reformed, and tax deductions are to be distributed among the federal, regional and municipal budgets. At the recent Gaidar Forum, First Deputy Prime Minister Igor Shuvalov said tax rules should be set for 5-6 years. At Davos, presidential aide Arkady Dvorkovich told RT television about planned real estate taxes and higher alcohol and tobacco excise taxes (as stipulated in the Tax Code) starting July 1, 2012. Former Finance Minister Alexei Kudrin proposed increasing the alcohol and tobacco excise taxes to the average European rate.
The bill on property tax, which should replace both personal and corporate land and property taxes, has been stalled in the Duma since 2004. Prime Minister Putin proposed introducing a luxury tax, which should impact only the owners of large or numerous properties. Experts say that this tax would depend on income, with low-income groups and rural population paying zero tax or 0.01% to 0.001% of a property’s cadastral value. Those earning over 1 million rubles ($33,000) would pay a 1%-3% tax, but possibly more, said Vadim Zasko, deputy director at the Higher School of Economics. The cadastral valuation of real estate is complete in 12 regions and should be finished in the remaining regions by the end of 2012. Since the cadastral value is usually several times higher than the inventory value, this should “increase budget revenue considerably,” Dvorkovich said.
The Pension Fund deficit of over 1 trillion rubles ($33 billion) could be resolved by shifting part of the insurance payments from employers to employees through mandatory social insurance, Dvorkovich said. At Davos, Kudrin mentioned the possibility of raising insurance premiums or changing their structure. He still thinks that the retirement age should be increased, some early retirement pensions cancelled and changes in the pension system approved for at least 50 years. Kudrin also spoke about raising taxes on gas production, saying that the gas production tax is inadequate, although it was doubled for Gazprom this year.
Dvorkovich supports the idea of replacing VAT with a sales tax because of problems with VAT collection (only 60%-70% of the planned amount is currently collected) and related corruption loopholes. Strategy 2020 mentions the need for this change. Alexander Ioffe from the Chamber of Commerce and Industry said a sales tax should be 7%-7.5% to fully compensate VAT collection. Another 2 percentage points would resolve the bulk of regional problems. Dvorkovich advocated a 10% sales tax at the Gaidar Forum. Kudrin said 70% would be better, but this is clearly impossible, which is why the Finance Ministry is calling for a lower profit tax and an increased VAT.
Moscow Authorities Seek Early Spring Break to Preempt Student Protests
Moscow officials have suggested that school principals move spring break up a month in an effort to encourage students, i.e., potential protesters, to leave the city before the March 4 election.
A director at a city center school confirmed the report, printed by Vedomosti, which quoted an unnamed federal official. The plan was discussed at a district meeting, the director said. The initial proposal was to order the change in dates, but they opted for a recommendation instead, since, officially, school directors have the authority to decide.
Another school has already notified parents that the break will begin in late February, a parent told Vedomosti.
A teacher in an eastern Moscow district said they received the announcement two weeks ago that spring break was being rescheduled from late March to early March. The teachers who inquired about the change were told, “You know why.”
They are doing this only because of the possible protests, one teacher said. A school administrator in northern Moscow also admitted that “these things are being discussed” at the Moscow Department of Education. Another option is to organize additional days off around the election date without changing the regularly scheduled break, she said.
However, sources at many schools said they plan to go on vacation as planned.
Moscow authorities have interfered with the education process several times since the December parliamentary elections. In particular, the dates of the standard city-wide tests were changed in high schools. Critics of City Hall’s policies are convinced that the authorities are attempting to reduce the number of those who will be available to protest election fraud.
Viktor Bout receives another refusal
Arrested in Thailand in March 2008 and extradited to the U.S. in November 2010, Russian citizen Viktor Bout has been kept in solitary confinement in a unit for special and dangerous offenders at New York’s Metropolitan Correctional Center (MCC) since November 2010. In November 2011, he was convicted by a jury of conspiracy to sell weapons to a terrorist organization, FARC, in Colombia.
He spends 23 hours a day in an 8 sq m cell under continuous video surveillance. One hour is set aside for exercise, when he is taken – handcuffed and leg shackles – to another solitary cell of the same size. He is entitled to one 15-minute telephone call per month.
His repeated requests for a transfer to common confinement have consistently been turned down, as have those of the Russian authorities. Among other things, prison authorities claim they cannot guarantee Bout’s safety in a minimum security cell.
The conditions of Bout’s confinement were changed last week, but Russian Deputy Foreign Minister Sergei Ryabkov explains this by the approaching date of his sentencing, February 8. In the meantime, Bout’s health has declined. Specifically, his teeth have been causing problems that the prison dentist is unable to address. Also, being a vegetarian, he complains that he is not receiving enough fruit and vegetables.
Speaking in an interview with Ekho Moskvy Radio, Ryabkov said the Russian authorities were planning to ask the U.S. authorities to let Russian nationals convicted in America – Viktor Bout and Konstantin Yaroshenko of Rostov-on-Don, who was sentenced to 20 years for alleged cocaine smuggling in September 2011 – serve their prison terms in Russia.
Late last year, the Russian Embassy in Washington officially notified the Department of State that it intended to submit a request for both men’s extradition to Russia. The Justice Ministry is preparing the necessary documents which could be delivered to U.S. authorities after sentencing is pronounced on Viktor Bout on February 8, 2012. Bout is likely to be sentenced to from 25 years to life. Experts believe that in this case he will be sent to a maximum security prison.
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