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. Last Updated: 07/27/2016

Deputies Submit Bill on Taxation Reform

A bill to reintroduce progressive income taxes tabled by the nationalist Rodina party has reopened the debate about whether the country should retain the current flat rate of 13 percent.

The new bill has already created a rift between pro-Kremlin parties A Just Russia and the more centrist United Russia. Economic Development and Trade Minister German Gref also waded into the issue Thursday, saying the change could be introduced from 2010.

"We have discussed [the bill] several times with deputies," Duma Speaker and United Russia leader Boris Gryzlov said Thursday. "We must guarantee the inviolability of tax laws, especially those that affect Russian citizens."

Gryzlov said existing tax laws passed in 2001 should be preserved for the foreseeable future.

After presenting the bill to the State Duma on Wednesday, Rodina leader Alexander Babakov called for income-tax exemption for citizens earning less than 60,000 rubles ($2,200) per year and a 30 percent "luxury tax" on those with annual salaries higher than 3.6 million rubles ($137,000).

The bill also calls for a 10 percent income tax on salaries between 60,000 and 120,000 rubles ($2,200-$4,400); 13 percent for salaries between 120,000 and 1.2 million; and a 20 percent rate for earnings between 1.2 million and 3.6 million rubles.

Experts believe the issue is being floated to test the waters ahead of next year's elections and that debate on the issue may be thwarted if it is not properly handled.

"This is nothing but cheap electioneering," said Anton Strutchenevsky, chief economist at Troika Dialog. "Taxation has never been a good way to level disparity in income, so this step is bound to fail."

Rodina's proposal gained tentative support from Gref, who said progressive income tax would make a comeback, but not earlier than 2010, Interfax reported.

Gref said the existing flat rate has justified itself fiscally and as a transition instrument from a gray to legal economy.

"It is clear that, sooner or later, the tax rate will be progressive. I cannot say by how much this will change or when, but I can tell you that we do not plan to do it before 2010," Gref said, Interfax reported.

Economists said any reforms would need to be implemented fairly if they are to be successful.

"A debate on taxation at this stage is good but the Russian economy needs a simple tax-collection system that places little burden on people," said Clemens Grafe, an economist at Brunswick UBS. "Russia needs at least five to six years to alter its income-distribution system before making changes to its tax system."

This is not the first occasion Rodina has called for using taxation to redress economic imbalances. Its party platform two years ago called for a progressive income tax and a luxury tax on items such as cars and yachts.