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. Last Updated: 07/27/2016

EDITORIAL: Communist Stand on Tax Misses Mark




The State Duma, as predicted, has responded with populist insouciance to the government's tax proposals. While the deputies in parliament's lower house have voted favorably on a few proposals in the government's anti-crisis program, they have dismissed all the bills that would significantly raise taxes.


In three days of debate on the program last week, the Duma passed a bill cutting the profits tax rate.


On the other side of the ledger, apart from a few minor bills on a simplified "imputed" tax on small traders and tougher measures for taxing gambling and liquor sales, the Duma either rejected flat or delayed measures to boost revenues. Rejected were bills to introduce a 5 percent sales tax at the regional level, to ban schemes that avoid income tax and to raise the value added tax and make it easier to collect.


The deputies have certainly earned plenty of populist kudos with this approach. They have appeared on television saying that they will oppose any measures that raise Russia's crushing tax burden.


But this grandstanding ignores the financial crisis that Russia faces. The government is desperately trying to repay its debts at a time when world emerging markets are in a state of panic and the price of Russia's main commodity exports has collapsed. In a word, the country needs cash.


The communists who dominate the Duma should realize this better than anyone else. If the government does not raise its revenues, it will inevitably lead to further cuts in government spending and then to cuts in salaries for the people the communists say they want to defend. As Prime Minister Sergei Kiriyenko candidly explained, less tax means less money to pay miners, teachers and doctors.


The Duma could argue that it blocked some of the tax measures on the grounds that they were regressive and unfair. It is true that proposals like a flat 5 percent sales tax and a rise in VAT on food will be a relatively heavier burden on the poor.


But the Duma's logic is flawed. In the same breath, it refused to pass bills that would ban a series of tax scams under which employees can avoid income tax by structuring their salary as payouts on insurance policies or income from bank deposits. In the interests of stopping a tax rise, the communists have defended schemes that are the province of shifty New Russians.


The Duma must drop its posturing and help the government develop a new tax mix that both raises total revenues and distributes the burden more fairly.