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Alexei Mikhailov (Yabloko) Tax Revolution is Clogged Up
Interview with "Vremya Novostei" newspaper No 56, p.2
June 8, 2000

The tax reform started yesterday. A member of the Duma Committee on Budget Alexei Mikhailov (the Yabloko faction) shared his views on the start of the reform with a correspondent from the "Vremya Novostei" newspaper Viktor Khmaryev.

Question: Now we have a single rate of income tax - 13%. In addition from January 1 Russian citizens will be not have to pay tax on education and health care expenditures. Do the authors of this reform believe that back-to-back, insurance and other schemes to conceal wages will become ineffective?

Mikhailov: This would have happened if the rate of the income tax had been backed by a regressive scale in the social payments that are accrued on wages. .

Q.: Are you referring to the social tax that the government plans to replace present insurance payments with?

Mikhailov: It is absolutely unimportant what this will be - tax or payments. The 40% of social payments accrued on wages are too high. They should be reduced to 20% at most. This can be done without affecting the population only through a regressive scale: those who earn more should pay a lower rate.

Q.: But the social tax proposed by the government contains a regressive scale: the employer will pay 35.6% of the social tax for a worker earning less than 100.000 roubles per year. For those who earn over 300.000 roubles per year, the employer will pay only 10%.

Mikhailov: This scale is regressive only in form. The Budget Committee of the Duma proposed adding one more line to this scale: those earning over 600.000 roubles per year should pay 2%. In addition the Yabloko faction proposed to levying the amounts spent not only on education and healthcare, but also on the purchase of a car, construction materials and spare parts both from income tax and social payments. In this way the incomes of rich and well-to-do Russian citizens could be brought into the open. However, the government did not adopt these proposals. Therefore shadow schemes will still remain preferable for the rich. And this is a pity, as the tax revolution was, at least in words, designed to bring the shadow economy into the open. But the revolution got clogged up at the very first step.

ei Stepashin on Grigory Yavlinsky's proposals