Russian Government Pledges to Use VAT Hike for Better Public Services

The government will use additional funds raised through increasing the VAT (value-added tax) on social needs and improvement of public services, Russia’s First Deputy Prime Minister and Finance Minister Anton Siluanov said Saturday.

On Thursday, the Russian government submitted a draft law on raising VAT (value-added tax) from 18% to 20% to the State Duma, the lower house of parliament, the press service of the Russian government said.

“Dmitry Medvedev signed an order to submit draft laws on changes in the legislation on taxes and fees to the State Duma,” the press service reported, according to TASS.

According to the Finance Ministry, which prepared a draft law on raising VAT, the tax hike will allow the federal budget to receive additional 620 billion rubles ($9.8 billion) a year beginning in 2019.

It is expected that VAT reliefs will be retained. They imply reduced tax rates for food, children’s goods, medical goods, as well as zero rates for domestic interregional air transport.

The authorities admitted that an increase in VAT could accelerate inflation.

On Friday, the Bank of Russia reported that the planned tax increase prompted it to raise its inflationary forecast and to keep the key rate at the current level of 7.25%.

The VAT bill is part of a large-scale tax reform. It implies freezing social payments at the level of 30%, a tax maneuver in the oil industry and the cancellation of the tax on movables, as well as abandoning the tax regime for the consolidated group of taxpayers.

On Saturday, the Cabinet also submitted a bill on reducing the aggregate tariff of insurance premiums to state off-budget funds from 34 to 30% and on setting the tariff of insurance contributions to the Pension Fund at a rate of 22%.