MinFin: insurance contribution rate cut to 22% to cost 1.4 trln rubles in 2019, VAT increase to provide 1.2 trln rubles
MOSCOW. March 15 (Interfax) - The Russian Finance Ministry's proposed non-oil tax maneuver, which stipulates a cut in the insurance contribution rate to 22% from 30% and an increase in the VAT rate to 22% from 18%, is aimed at providing equal competitive terms in the economy, to reduce the flow of businesses moving into the information sector and reduce imbalances in the state insurance system, Deputy Finance Minister Vladimir Kolychev told journalists.
Fiscal devaluation is not a goal of the maneuver, Kolychev said.
"Fiscal devaluation is not possible in a country with a floating exchange rate. It is only possible in a country that controls the exchange rate; some of them, when they were unable to adapt to external shocks via adjustments to the exchange rate, resorted to such policies," Kolychev said.
The so-called 22/22 option provides a balance between budget neutrality and correlation between the positive and negative effects on the private sector. "What does 'neutral consequences from the budget standpoint' mean? This means that the budget doesn't receive any addition revenue, meaning that the overall burden on the private sector is unchanged, only the structure changes. It can be said that if it's neutral for the budget, then it's neutral for the economy overall," he said.
The maneuver only applies to the standard VAT rate (18%), not the 10% discounted rate; existing discounts to the insurance contribution rate will also be maintained. However, the Finance Ministry proposes scrapping the 10% threshold for Pension Fund contributions that is paid for salaries that exceed 876,000 rubles in 2017.
Implementation of the maneuver will result in a larger transfer from the federal budget to the Pension Fund. However, the Finance Ministry reckons that the system with the existing level of insurance contributions would be more out of balance than if the transfer is now increased.
The Finance Ministry is not worried about a decline in the collectability of VAT due to the higher rate, arguing that experience in other countries shows that problems with administration only begin when the rate is 25% and higher.