The tax system of the Russian Federation ( ) is a complex of relationships between fiscal authorities and taxpayers in the field of all existing taxes and fees. It implies continuous communication of all its members and related objects: payers; legislative framework; oversight authorities; types of mandatory payments. The Russian Tax Code () is the primary tax law for the Russian Federation. The Code was created, adopted and implemented in three stages.
The first part, enacted July 31, 1998, also referred to as the General Part, regulates relationships among taxpayers, tax agents, tax-collecting authorities and legislators, tax audit procedures, resolution of disputes, and enforcement of law.
The second part, enacted on August 5, 2001, defines specific taxes, rates, payment schedules, and detailed procedures for tax calculations. It was significantly amended in 2001–2003 with additions like the new corporate profits tax section and the new simplified tax system for small business. The Code is subject to regular changes which are affected through federal laws.
The Code is designed as a complete national system for federal, regional and local taxes but excludes customs tariffs. Rules and rates of regional and local taxation must conform to the framework established by the Code. Taxes or levies not listed explicitly by the Code or enacted in violation of its specific provisions are deemed illegal and void.Тax Code, article 3 p.5.
The Russian tax system tends to use moderate flat or regressive tax rates. It is highly centralized for a federal state and relies heavily on proceeds from oil and natural gas corporations, who themselves are mostly state owned. In 2006 the tax burden on oil companies exceeded 45 percent of net sales (compared to 12 percent in construction and 16.5 percent in telecommunications).Doing business in Russia 2008, p. 48, citing official state statistics for 2006 Rates for oil-related taxes and tariffs, unlike regular taxes, are set not by the Tax Code but by government decree. The Russian Ministry of Finance estimated that revenues regulated by the Tax Code accounted for 68 percent of federal revenue in 2008 fiscal year, rising to 73 percent in 2010. Ministry of Finance of Russia. Key parameters of federal budget for 2008–2010
Individuals pay an income tax (13 percent), land tax (0.3 percent of the land's cadastral plot which is calculated by a special formula) and vehicle tax (which is linked to the vehicle's engine power). Most small businesses are eligible for simplified taxation and can choose one of the following taxes: income tax (6 percent) or profits tax (35 percent) or unified agricultural tax (6 percent, farmers only) or tax on imputed income (calculated by a special formula, certain companies only). Corporate taxes for medium and large businesses include profits tax (20 percent), value added tax (20 percent), property tax (0-2 percent) and some other taxes like water tax and mineral tax.Business in Russia // SDV Consulting, Retrieved on 11 May 2023
President Putin signed into law in 2024, a bill imposing a 13% progressive tax for those earning up to 2.4 million rubles ($27,500) annually, a 22% income tax on those earning above 50 million rubles ($573,000), and a 5% increase on corporate taxes.
History
Taxation in Russia before the Code
Prior to enactment of the Code, Russian tax legislation was based on a patchwork of laws enacted in the last years of the Soviet Union (notably, the 1990 laws on personal and corporate income taxes), the 1991 law "On the framework of the tax system in the Russian Federation" and subsequent federal, regional and local laws and executive decrees; the underlying Soviet rules of accounting and business practices remained largely unchanged. Taxation in 1992–1998 was substantially decentralized: regional and local authorities were entitled to invent their own taxes, or could, on the contrary, create tax havens for "domestic off-shores".
In his February, 1995 presidential address Boris Yeltsin proposed to re-centralize and streamline the tax system through a unified Tax Code.Boris Yeltsin. Presidential address to the Federal Assembly, February 16, 1995 Yeltsin declared that the Code's objective was to promote investments in manufacturing, while at the same time fully collecting taxes, and specifically demanded abolition of arbitrary tax preferences and tax evasion. He admitted that the state had no clearly formulated approaches to important taxation problems—these had to be resolved in 1995–1996. One year later, Yeltsin reiterated the call to curtail "new techniques" of tax evasion and "regional self-financing". He stated that the forthcoming enactment of the Code was only a start, that the government-sponsored draft was incomplete and that the proposed rates were excessive.Boris Yeltsin. Presidential address to the Federal Assembly, February 23, 1996
The only tax law enacted in this period and still effective in 2008 is the individual property tax (enacted in 1991, with amendments). Individual property tax is explicitly authorized by the Code but exists as a standalone law.Tax Code, article 15
Enactment of Part One
The Government of Russia presented the first official draft of Part One to the State Duma in February 1996,Resolution of Government of Russia, February 2, 1996 No. 114-p four months prior to the 1996 presidential election; Part Two was presented in April 1997.Resolution of Government of Russia, April 30, 1997 No. 585-p Deputy Minister of Finance Sergey Shatalov promoted the bill. After more than a year of refinements, the Duma passed the bill in the first hearing (due process requires three stages, or hearings) on July 19, 1997.Resolution of State Duma, June 19, 1997 No. 1575-II ГД In June–October the Duma accumulated over 4,500 proposed amendments to the bill, making further progress impractical.Smith, p.30 In October 1997 the Duma and Government clashed over the federal budget for 1998 fiscal year, and the Government recalled the bill to appease its adversaries. When this stage ended, the Duma refused to come back to the old bill; Yury Luzhkov, major opponent of centralized tax collection, declared that "the tax code is already dead. It stinks".Smith, p.31
The Duma restarted the process, inviting competing drafts to be filed by January 31, 1998.Resolution of State Duma, 19 November 1997 No. 1903-II ГД By the deadline the Duma had received ten alternatives, as well as the new government version; this time sponsored by Minister of Finance Mikhail Zadornov and his deputy Mikhail Motorin. They made it clear that any alternative draft would face veto by the President, at the same time incorporating ideas from the competing drafts. On April 16, 1998 the Duma finally chose the Government draft over the alternatives with a 312 to 18 vote.
Enactment of the Code was hastened by the imminent 1998 Russian financial crisis. Sergei Kiriyenko, appointed Prime Minister in April 1998, included the Code in the government's anti-crisis package. Yeltsin threatened to impose the Code by decree if the Duma failed to quickly enact it. David Hoffman. Yeltsin Demands Action on Economy // Washington Post Foreign Service, June 24, 1998 On July 16, 1998 the State Duma discarded budget-balancing proposals, Sharon LaFraniere. Key Yeltsin Reforms Fail in Parliament // Washington Post Foreign Service, July 18, 1998 but approved the third, and final, hearing on Part One;Resolution of State Duma, July 16, 1998 No. 2813-II ГД the next day it was stamped by the Federation Council and finally signed into law by the President on July 31, 1998 (to become effective on January 1, 1999 with certain exclusions).Federal Law dated July 31, 2008 no.146-ФЗ It was officially published in Rossiyskaya Gazeta on August 6. Anti-crisis actions failed, and on August 17, 1998 Russia defaulted on its government bonds.
Enactment of Part Two While Part One was instrumental in re-designing day-to-day relationships between taxpayers and the state, it did not address specific taxes; thus, in 1999–2000 taxpayers still paid multiple taxes with the old rates. Part Two, implemented under Vladimir Putin (enacted in August 2000, effective January 1, 2001) promulgated a flat 13 percent personal income tax rate, and replaced various social contributions with a unified social tax (UST). In 2001 collection of personal income tax increased by 26 percent (adjusted for inflation). Tax compliance improved; an estimated one third of previously untaxed jobs were added to the tax rolls, although economists cannot separate the effects of tax rates from those of general economic recovery and improved law enforcement. Anne Ivanova; Michael Keen; and Alexander Klemm. The Russian 'flat tax' reform // Economic Policy, Vol. 20, No. 43, pp. 397–444, June 2005. Gorodnichenko, Yuriy; Jorge Martinez-Vazquez; and Klara Sabirianova Peter. Lessons from the Russia's 2001 Flat Tax Reform. VOX EU, February 19, 2008
A commitment to abolish sales-based taxes was reflected in the abolition of the municipal housing tax (2000) and, eventually, the road tax and retail sales tax (2003). To offset the resulting drop in municipal revenue, Putin temporarily increased corporate profit tax rates for 2001 to 35 percent (43 percent for banks); the framework of profit taxation had yet to be redefined.
Major amendments and revisions
The second, and probably most important, stage of Putin's tax reforms—Chapter 25 of the Code dealing with corporate profits—was enacted in August 2001 (effective January 1, 2002). The tax rate was decreased to 24 percent for all taxpayers. Dividend taxation decreased to 6 percent (15 percent for non-residents). At the same time, the Code abolished tax breaks, broadening the tax base. Chapter 25 also instituted a special set of accounting rules for profit tax purposes; businesses could choose either to harmonize their statutory and tax accounting or maintain two sets of books. Gaps between statutory and tax accounting persisted, precluding complete harmonization.
In December 2001 legislators created a simplified tax system for agriculture.Federal law dated December 29, 2001 No.187-ФЗ; Tax Code, chapter 26.1 A string of amendments in July 2002 resulted in present-day simplified tax system for small businesses, imputed tax on retail operations,Federal law dated July 24, 2002 No.104-ФЗ; Tax Code, Chapters 26.2, 26.3 and redesigned the taxation of private and corporate motor vehicles.Federal law dated July 24, 2002 No.110-ФЗ; Tax Code, chapter 28
On January 1, 2004 the VAT rate decreased from 20 percent to 18 percent.Federal law dated July 7, 2003 No. 117-ФЗ In 2007–2008 Putin, both as president and later as prime minister, promoted a decrease in the VAT rate to 12 percent by 2010;Russia's tax reform sees VAT cut to 12–13 pct. Reuters, March 16, 2008 Putin's allies Sergey Chemezov and Minister of Economics Elvira Nabiullina support this proposal. Chemezov demands VAT decrease to 12% // Kommersant, August 14, 2008 Minister of Finance Alexey Kudrin opposed the change due to the need to finance the Pension Fund and the rearmament of Russian troops. Minfin heads to his last fight for VAT // Izvestia, August 4, 2008
On January 1, 2005 Russia abolished the tax on advertising—the last remaining provision from the early 1990s.
The government slowly but regularly increases excise taxes on alcohol, tobacco, gasoline and motor oil; the current Code provides a detailed plan for raising the rates until 2010 fiscal year.Tax code, article 193.1
In the wake of the 2008 Russian financial crisis, September 18, 2008, the Russian Ministry of Finance declared short-term tax changes: The VAT rate for 2008 would remain fixed at 18 percent;