Russia proposes higher income taxes for the well-off

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(Reuters) -Russia’s finance ministry on Tuesday proposed introducing extra progressive income tax rates for those earning more than 2.4 million roubles ($27,100) annually, as well as raising the mineral extraction tax for fertiliser and iron ore producers.

The proposed amendments to Russia’s tax code would come into force from 2025 and, according to finance ministry estimates cited by the Interfax news agency, bring an additional 2.6 trillion roubles in budget revenues that year.

President Vladimir Putin proposed higher taxes for companies and wealthy individuals shortly before securing another six-year term in power in March, in an election widely condemned in the West as undemocratic. Russia is ploughing funds into the defence sector to fund its war in Ukraine.

Income tax is currently 13% for the majority of Russians, with some higher earners paying a rate of 15%. The finance ministry said in a statement that it had submitted proposed alterations to the tax system, with the 15% rate set to apply for annual incomes from 2.4 to 5 million roubles.

The rate would rise to 18% for income between 5 and 20 million roubles, to 20% for income between 20 million and 50 million roubles and 22% for earnings exceeding 50 million roubles.

“The tax changes will affect only 3.2% of the workforce, or 2 million people of the workforce of 64 million with annual income exceeding 2.4 million roubles,” the statement quoted Finance Minister Anton Siluanov as saying.

He said the increase would only apply to income above 2.4 million roubles and that about half of families with two or more children would benefit from a rebate.

The flat tax rate of 13% was introduced in Russia in 2001 at the beginning of Putin’s first term. From 2021, a rate of 15% was introduced for Russians with income exceeding 5 million roubles.

The lion’s share of personal income tax is credited to regional budgets. Last year, personal income tax receipts totalled 6.38 trillion roubles, according to the federal tax service, or 28.6% of taxes collected for Russia’s budget.

BUSINESS TAXES

The ministry proposed raising Russia’s corporate tax rate to 25% from 20%, with a promise to include a deduction for some investments, as requested by businesses.

The change would also see export duties linked to the rouble-dollar exchange rate abolished, as announced by Siluanov last week.

The ministry said corporate tax rates could increase because the share of profitable companies in the economy was growing.

The corporate tax hike would add 1.6 trillion roubles to the budget in 2025 and 11.1 trillion roubles by 2030, Interfax reported, citing an explanatory note from the finance ministry.

The proposed tax amendments also include an increase in taxes for fertiliser and iron ore producers. The mineral extraction tax for iron ore producers would increase by 1.15 times, for potash producers by 2.3 times and it would double for phosphorus fertiliser producers.

($1 = 88.5705 roubles)

(Reporting by Reuters; Editing by David Gregorio and Stephen Coates)