Russian Modernisation: Structures and Agencies by Markku Kivinen

Author:Markku Kivinen [Kivinen, Markku]
Language: eng
Format: epub
ISBN: 9781315098364
Google: c_Z5tAEACAAJ
Goodreads: 36742704
Publisher: Routledge
Published: 2017-01-15T13:37:50+00:00

Successes and failures of reforms: case studies

Tax and budgetary reforms: a success story

The tax and budgetary reform implemented in the early 2000s in Russia became a model example of the most successful policy changes of that period. In the 1990s, the emergence of the modern tax system in Russia was accompanied by weak state capacity, a spontaneous decentralisation of governance, political instability and the obvious imperfections of many legal regulations (Volkov 2002; Easter 2006, 2008). As a result, Russian authorities had major difficulties with tax collection. The widespread use (or abuse) of numerous tax exemptions, non-monetary payments in the form of different offsets and money substitutes, and the proliferation of legal, extra-legal and illegal schemes of tax evasion, combined with the high taxation rates and the large number of taxes, made the government’s fiscal policies extraordinarily inefficient (Nazarov 2011, pp. 467–79).

From a formal viewpoint, the tax reform involved the development, adoption and implementation of the Tax Code, which established unified rules of taxation and fiscal governance in Russia. Its first chapter, which defined the foundations of the country’s tax system, was adopted in 1998. But the development of the second chapter took five more years. In 2000–2004, a new set of taxes and tax rates was established which replaced or defined previous ones. As a result, on the one hand, the tax burden on individuals and business was drastically reduced (especially due to the changes in the taxation rates of value added tax and profit tax, and the introduction of the unified social tax). On the other hand, the fiscal revenues of the state budget increased. This was achieved through the adoption of a flat rate of personal income tax (13%) instead of a so-called progressive rate, which stimulated tax evasion among relatively well-to-do taxpayers (Appel 2011). As a result, between 2000 and 2007, extra revenues for the Russian budget reached an overall level of 1% of the GDP (Nazarov 2011, p. 495).

In addition, the government managed to push a new model of taxation for oil companies through the parliament. Firstly, the subsoil use tax was established, with its rate depending on the sector of economy and the production costs. Secondly, a progressive rate of oil export duties was introduced, and oil products excises were increased. While global oil prices were growing unprecedentedly after 2003, these policy measures contributed to an immense increase in budget revenues.

The increase of tax revenues from the oil sector allowed the government to establish the Stabilisation Fund of the Russian Federation—a mechanism of sterilisation of budgetary revenues intended to prevent high rates of inflation and to form financial reserves in case of a major decrease of global oil prices. The Stabilisation Fund was established despite resistance from certain government ministers and from a number of MPs and numerous lobbyists who were interested in spending extra revenues on current projects instead of saving funds for the future (Zaostrovtsev 2010). The prudence of this policy became evident during the 2008–2009 economic crisis when the Reserve Fund of

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