Evaluating the Russian Tax System's Role in Economic Growth

This essay critically analyzes the Russian taxation law and its implications on economic growth and development, comparing it with tax principles of other nations. It examines the historical context, including the economic changes after Vladimir Putin's election, and Russia's economic goals. While acknowledging the positive impact of the Russian taxation law, the essay explores queries regarding the rigidity of certain policies and the over-reliance on natural resource taxation. It suggests reshaping the taxation policy to tap into citizen's potential, drawing a comparison with the United States' taxation system. The essay also discusses the importance of research in tax administration, risk assessment, and regulatory enforcement to improve market surveillance and reduce corruption. It concludes by mentioning the Russian government's efforts to amend the tax code and broaden the power of legislative entities.

Running head: TAX LAW1
Tax Law
Student’s Name
Institutional Affiliation

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Tax Law
Introduction
The implementation of tax policy in a state is propagated by the government due to the
choices it makes as to the taxes it should charge its citizens thus covered in both the micro
economics and the macroeconomics fields1. In the macroeconomics part, taxation policy
concerns the entire amount of taxes that is supposed to be collected to affect the level of
economic activities in nation hence covers the aspect of fiscal policy in details. Furthermore, the
micro economics aspect as well talks about the issue of fairness in accordance to the type of
people that should be taxed and a locative efficiency. Similarly, implementation of the tax policy
has at times been a difficult business since there will be other concerned parties that will support
the initiative and the other will reject the proposal by all means despite the fact that it’s for the
better part of the countries wellbeing. On the hand, overreliance on the consumption taxes and
there is no avenue of the continuous personal income tax in many nations neutralizes the benefits
that the poor working class receive from refundable low income tax credits2. Moreover, in order
to have a strong, sustained and inclusive economic development, a reliable and good functioning
taxation policy system must be put in place since the revenue fund on the administrative
infrastructure and the public expenditure depends solemnly on the cost tax collected in the
1 Aivazian, S. and Brodsky, B., 2006. Macroeconometric modeling: modern trends, problems, an
example of the econometric model of the Russian economy. Applied econometrics, 2(2), pp.85-
111.
2 Granville, B. and Oppenheimer, P., 2001. Russia's post-communist economy. Oxford University
Press.

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nation. This essay is therefore set to critically analyze the Russian taxation law, express its
implication on economic growth and development, and discuss the relevant corrective measures
that can make the policy effective in promoting economic development while comparing the law
with the principles of the other nations across the globe.
Russian economic growth has changed more rapidly and unexpectedly due to the
implementation of the tax policy3. When Putin Vladimir was elected as the Russian people’s
president, the country was really suffering in the state of bankruptcy with plenty of depts. Russia
had obtained a virtual economic development and it becomes one of the huge creditors of the
U.S. debt across the globe.
In the beginning of 2009, the MET published a strategy that portrays Russian 2020
economic development goals and if the goals are to be put into actions or transformed to reality
then Russia would lead the economic stability in Europe and the fifth largest in the across the
globe being closely followed by the US, India, China, and Japan4. Despite the fact that the
Russian taxation law has enhanced economic growth and development in the country, several
queries circumnavigate the rigidity of some of the policies in Russia. The government of Russia
is pursuing policies that are likely to constrain the rate of growth and thus when one closely
examines its economy then there is need to put into consideration the current growth trends5.
Russia has never been more successful or integrated in the global economy like in the current
3 Orlova, M. and Khafizova, A., 2014. The tax component of innovative activity assessment in
the Russian Federation. Life Science Journal, 11(11), pp.328-333.
4 Lavrenchuk, E.N., 2013. Characteristics of taxes in Russian Federation. American Journal of
Economics and Control Systems Management, 2(2), pp.018-024
5
Gaddy, C.G. and Ickes, B.W., 2005. Resource rents and the Russian economy. Eurasian
Geography and Economics, 46(8), pp.559-583.

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state thus an achievement and a positive development in the in the Russian federation since the
collapse of the soviet republics.
Similarly, due to the stunning economic growth that has been propagated by the rising
prices of commodity and the cheap foreign credit, has attracted Russia an attractive seat of
foreign investment. The Organization for Economic Co- operation and Development (OECD)
focuses on establishing stable laws for better future life by initiating a platform that collects and
share ideas, knowledge and experiences thus finding solutions for common problems that is
facing majority of the countries6. OECD has better policies that provide an outline of the key
challenges that are being encountered by individual states and the primary principle
recommendation to curb them regarding the taxation operations.
Russia has made rapid development in minimizing the poverty levels and competing the
income level countries thus majority of the citizens have good paying jobs thus improving their
living standards. It is fundamental to realize the fact that the current development of the country
relies fundamentally on the revenue generated from taxation. Similarly, improvement in the
standards of living requires a low dependency on the natural resources, economy modernization
and ensuring a collaborative and reliable economic growth. Russia possess plenty assets that it
can depend on them to bring about of low debt, employee participation and numerous energy
resources since it has potential in areas like space technology and other untapped potentials in
the economy sector. Nevertheless, Russia face major policy challenges that may include:
financial sector, competition, fiscal framework, business framework, innovation, governance of
6 Silka, D.N., 2014. On priority measures for creating the basis for the development of the russian
economy. Life Science Journal, 11(7s), pp.310-313.

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the public enterprise, employment, social policies, health, education, energy, green policies and
agriculture7. Additionally, OECD focuses on creating the relationship and tightening the bond
with Russia through accessing process that facilitate in making the Russian economy modern,
vibrant and inclusive.
Russian economy tends to be modernized hence requires more effort to cover for it to
attain the living standards of the most advanced market oriented countries despite its tremendous
improvement in the economic growth in the previous years8. In order for it to narrow the gap, it
has to modernize the economy and reduce the rate of dependency of revenues from natural
resource extraction and thus focus on having abroad based growth that is sustainable. The bigger
crisis of the Russian taxation law revolves around emphasizing on the taxation of the natural
resources. Regarding such an ideology, Russia has potential to use its citizen’s great potential
and enhance economic growth beyond its natural resource utilization by reshaping the taxation
policy. A typical example of countries with stable taxation policies that cover wide areas of
citizen’s potential to generate revenue for economic development is the United States of
America. Russia would be more effective if it applies such principles in the taxation law.
The figure below demonstrates the percentage of GDP per capital gap being equated with
the upper half of OECD states
7 Pogorletskiy, A.I. and Bashkirova, N.N., 2015. The dynamics of tax system and tax
administration development in the Russian Federation. Journal of Tax Reform. 2015. Т. 1.№
1, 1(1), pp.4-24.
8 King, C., 52004. A Rose among Thorns-Georgia Makes Good. Foreign Aff., 83, p.13.

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Russians relative potential include a very low public debt, high labor force participation
and great population of the high school students going for other great levels of education
compared to the other OECD countries. Russia has great potential in space technology and the
other hand its economy exhibits extreme inequality, poor health, low productive levels, mixed
educational results and poor health and environmental outcomes that is greatly accompanied by
business environment that is greatly undermined by the weak rule of law and corruption levels in
the state. Therefore, it would be relevant to reshape the taxation law of the country such that
underdeveloped aspects are under taxed but adequately funded to allow for economic
development uniformity in the entire nation. Those in power often emphasize on the benefits
modernizing and diversifying the economy by lowering the budgetary dependency rate on oil
and gas revenues9. Seemingly, monetary regulations have brought systematic reduction in the
inflation for the last 12 years hence improving the business atmosphere and economic
9 Preobragenskaya, G. and McGee, R.W., 2004. Taxation and public finance in a transition
economy: a case study of Russia.

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performance by stabilizing regulations, reducing the rate of corruption and expanding the
competition levels through a less bureaucratic product market policy.
Effective research in the tax administration provides natural context of cross disciplinary
study as it functions at the intersection of several disciplines. There are also significant benefits
on the research outputs and the impacts thus providing developing frame works and measure of
good tax administration practice. On the hand monitoring, evaluation of program effectiveness
and risk assessment are one of the effective procedures to ensure that the ethics and the rule of
law are followed. This is practically done by monitoring and auditing to realize criminal
operations or the individuals that are not compliant to the tax policies in the state10. Periodically
the risk assessment is done to recognize criminal conduct and to establish publicize strategies
that allows anonymous and a very confidential reporting that will facilitate the agents and
employees to report or sort for assistance on the issue pertaining criminal conduct without the
retaliation feeling.
They are regulatory standards that will be implemented and enforced on regular basis
through a well-publicized and accessible disciplinary measures and guidelines. There is response
that will be put into place to detect criminal offenses and corrective action plans have already
been put into place through appropriate disciplinary mechanism to prevent similar
occurrence11.The criminal conducts are supposed to be conveyed and the organizations should
10 Gorodnichenko, Y., Martinez-Vazquez, J. and Sabirianova Peter, K., 2009. Myth and reality of
flat tax reform: Micro estimates of tax evasion response and welfare effects in Russia. Journal of
Political economy, 117(3), pp.504-554.
11 Bykov, S.S., 2012. The role of counteraction against tax evasion in the Russian tax law
system. Nalogi i finansovoe pravo–Taxes and Financial Law, (9), pp.124-129.

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work closely with the statutory administrative to ensure justice is delivered and no individual
should evade paying taxes despite the authority or influence he has with the citizens or the
government in place12. Thus the compliance program should be amended in order to prevent any
criminal act from erupting.
The Russian government has put more efforts and embarked on forming regulatory
enforcement systems and business inspections devices to improve the market surveillance
outcome while moving away from unnecessary regulations, rent seeking behavior and inefficient
enforcement. It is important to do the business reports in order to simplify and streamline
business processes to avoid any form of malpractice that may be going on. Similarly, the
introduction of electronic services has reduced the levels of in person interaction between
businesses and government agencies which intern will reduce the possible possibility for
corruption and thus focus on increasing the level of efficiency and transparency in business
services.
Some of the challenges in the Russian taxation law have been addressed within the
Russian Taxation Bill13. The Russian government has handed over to the State of Duma a bill
that amends chapters of Russian tax code that outlines special tax regime that involves the
Simplified Taxation System, Patent Taxation System and Imputed Income Tax14. Moreover, the
bill has to undergo the standard legislative process for it to be effective. In the Russia
12 Kotsonis, Y., 2004. “Face-to-Face”: The State, the Individual, and the Citizen in Russian
Taxation, 1863-1917. Slavic Review, 63(2), pp.221-246.
13 Aguzarova, F.S., 2014. On changes in the Russian tax law. Finance and credit, (21), pp.46-51.
14 Stepanyan, V., 2003. Reforming tax systems: experience of the Baltics, Russia, and other
countries of the former Soviet Union (No. 3-173). International Monetary Fund.

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government system, the power of legislative comprise of the entities and representative
authorities of the municipal entities which need to be broadened. Those authorities in place
independently determine the variety of entrepreneur activities to which Special Tax regime may
be implemented by establishing tax benefits, tax rates and the thresholds.
This kind of taxation system in Russia is simplified in way that when the amount of
income is taxed, the tax rate could drop from 6% to 1% and for the tax payers the difference
between the income and the expenditure will be 5% -15% that will be constant15. Freshly
registered individuals providing consumer services will be paying taxes for the first2 years of
engaging in business since the law in place only provides beneficiaries to those individuals that
are involved in the production, social and scientific activities.
Finally, for Imputed Income Tax, the legislative authority of Moscow Sevastpol and St
Peterburg will have the authority and mandate to reduce the current rate of tax from 15% - 7.5%
on income imputed. Nevertheless, the patent taxation system has a series of activities in the
extension list that may include software development, software adaptation, computer repair,
waste disposal, production of milk and bread16. When considering the case of simplified taxation
system, the bill supports the newly- registered sole proprietors who provide consumer services
not to pay taxes for the first two years hence several small businesses will get a lot of tax benefits
compared to the large business operatives. Such a strategy is very significant in promoting the
development of the infant companies in the country. The strategy also helps to enhance
competition rather than promoting monopoly that may hinder the entry of new entrants in the
15 Alexeev, M. and Conrad, R.F., 2013. The Russian Tax System. In The Oxford Handbook of the
Russian Economy.
16 Carragher, N. and Chalmers, J., 2011. What are the options? Pricing and taxation policy
reforms to redress excessive alcohol consumption and related harms in Australia.

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country. In so doing, the development of the industrial sector and infrastructure of the economy
is enhanced through the expanded business operation.
Usually, foreign investors are exploitative to the economic development of an economy
as they carry their revenues back to the home countries. Therefore, the ideology of overtaxing
the huge companies in the country focus majorly on the foreign huge firms which should
contribute fully to the economic development of the country by compensating for the utilization
of the available resources. The funds raised from taxation of such companies are further utilized
in the economic development of the nation.
Russia has been on the run of building modern fiscal institutions that has basically been
formed tax system. The annual results have been over the last twelve years and the public
financial assets have greatly exceeded the gross public debt as compared to the most OECD
countries. Nevertheless, the fiscal policy has continually encountered a lot of major challenges
and shortages that is connected to the Russian natural resource wealth, real exchange rate
volatility and notably commodity of prices. The challenge has been intergenerational equity, pro-
growth and social spending and optimal balance between fiscal stability. The additional
challenge rendered in the fiscal policy is the uneven distribution of wealth and extremely high
levels of income inequality that have slightly reduced due to tax and benefit systems.
The outcome of fiscal policy improved tremendously in the past ten years as compared to
the 1998 period that leads to the government partial collapse17. These has been reflected by the
rising prices of oil and the initial commitment to restrain the amount of expenditure that have no
fundamental gains and this aspect has been seconded by the institutional mechanism that
17 Desai, R., Freinkman, L.M. and Goldberg, I., 2003. Fiscal federalism and regional growth:
Evidence from the Russian Federation in the 1990s. The World Bank.

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manages wealth resource. Russia has put into place associations that promote annual policy and
the primary features of budgetary formulation that has OECD best practice interest18. Measures
that have been put in place for the three-year budget are: fiscal reporting, macroeconomics
forecasting, limiting the scope by parliament budgetary amendments and financial risking.
Therefore, the current efforts undertaken by Russia regarding the fiscal policy concept are
promising while interpreting the ideology of taxation law in correlation with the economic
growth and development of the nation.
The figure below is representation of an overall and non-oil general government balance:
Russia has made great improvements in reforming the taxation structure to the
effectiveness of tax assortment thus the tax policies have been expanded, compliance improved
and the rates cut the tax burden in the Russian organizations is modest but the inefficiencies still
remain hence oil and gas tax charges should be adjusted to seizure the economic rents without
having harm on the incentives for development and exploration19. There is low tax on the
18 Desai, R.M., Freinkman, L. and Goldberg, I., 2005. Fiscal federalism in rentier regions:
evidence from Russia. Journal of Comparative Economics, 33(4), pp.814-834.

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corporate profits due to the 20% cut, but any possibility of further reduction cannot be ruled out
despite that indirect taxation on products that can be increased20
The Russian taxation law can also be made more effective in enhancing economic growth
and development through the execution of the OECD recommendation. The major OECD
recommendation include: further reformation of the taxation system by enlightening the rate of
taxation of rents from the natural resource utilization hence shifts the tax charges from labor
income to indirect taxation and decreasing the entire framework and workability21. Similarly, it
forms a broad and robust agreement around the freshly formed prices of oil to protect the
economy from price inflation. Furthermore, there will be need to increase budget limpidity to
avoid eruption of additional financial plans and support the executions of performance budget
reform. On the other hand, it addresses the weakness or failure in the municipal and regional
funding regimes that promote the answerability for economic development and regional levels
making federal annual relations more rule based.
Russia can easily be compared to other nations regarding the taxation law concept
following the aspect of the economic growth due taxation. Russia is ranked top 20 worldwide on
these two indicators that include: property registration and enforcing contracts thus it takes less
19 Gordon, R. ed., 2010. Taxation in Developing Countries: Six Case Studies and Policy
Implications. Columbia University Press.
20 Krasovsky, K.S., 2010. " The lobbying strategy is to keep excise as low as possible"-tobacco
industry excise taxation policy in Ukraine. Tobacco induced diseases, 8(1), p.10.
21 Weinthal, E. and Luong, P.J., 2001. Energy wealth and tax reform in Russia and
Kazakhstan. Resources Policy, 27(4), pp.215-223.