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Opportunities for Raising Incomes of Low-Income Groups in Russia Using Tax Regulations

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Studies on Russian Economic Development Aims and scope

Abstract—

Tax revenues are one of the main sources of income for the state budget system. In addition, taxes act as one of the most effective tools that affect the level of income of enterprises and the population. Among the most urgent and pressing issues in this area are the problems associated with the increase in income of low-income population groups. These problems are studied by many Russian and foreign researchers. However, they have not yet received a universal solution. The authors consider the possibilities of using tax instruments, in particular, the progressive scale of taxation on personal income, to ensure income growth of the least affluent part of the population, as well as to reduce inequality.

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Notes

  1. In this article, quasi-mandatory payments are payments that are not formally mandatory from the viewpoint of legal requirements, but may, in case of non-fulfillment, lead to negative consequences for citizens. For example, such payments include loan payments, tuition fees, payment for individual medical services and medicines, etc.

  2. Income is determined after contributions to the pension and unemployment insurance fund but before taxes and transfers.

  3. Since 2013, Rosstat has been calculating the monetary income and expenditures of the population in accordance with the Methodological Provisions approved by Rosstat Order no. 465 of July 2, 2014, as amended on November 20, 2018. Calculations of the population distribution by per capita average cash income are made in accordance with the methodology approved by Goskomstat Order no. 61 of July 16, 1996, using data from the Sample Survey of Personal Income and Participation in Social Programs. At the time of writing, the last annual values of the macroeconomic indicator of average per capita cash income in the context of 10% groups were published for 2020.

  4. Sample Survey of Personal Income and Participation in Social Programs. https://gks.ru/free_doc/. new_site/vndn-2021/index.html, https://gks.ru/free_doc/new_site/vndn-2022/index.html. Accessed March 3, 2023.

  5. Sample Survey of Household Budgets (SSHB). https://obdx.gks.ru/. Accessed March 3, 2023. Materials are published in the Rosstat collection “Income, expenditures and consumption of households” https://rosstat.gov.ru/folder/11110/document/13271. Accessed March 3, 2023.

  6. According to preliminary estimates of Rosstat. https://rosstat.gov.ru/folder/13397. Accessed March 3, 2023.

  7. According to Rosstat’s operational estimate. https://rosstat.gov.ru/storage/mediabank/203_02-12-2022.htm. Accessed March 3, 2023.

  8. There are different approaches to defining the middle class. For example, according to the methodology of the World Bank, the middle class includes citizens with an income of 1.5 times the minimum wage, Credit Suisse defines the middle class as citizens with a monthly income of at least 2000 US dollars (or 151 000 rubles in April 2021 [13], Alfa Bank considers the middle class as citizens who can freely buy durable goods, etc. According to the results of a longitudinal study covering the Russian middle class and conducted by experts of the National Research University Higher School of Economics based on materials of the Russian Monitoring of Economic Situation and Population Health (REMPH) [14], the middle class according to welfare criteria includes households included in 8 to 10 deciles by per capita income, and a number of other characteristics (availability of savings, second home and land in ownership, income from household plots (for rural areas), etc.) are also considered. In this case, a comprehensive approach to the definition of the middle class involves taking into account, along with the level of well-being, such criteria as socio-professional attributes and self-identification. Close estimates of the level of well-being of the middle class are given in the RIA Rating study, the authors of which believe that “the middle class means families that can afford to buy a car and an apartment corresponding to the size of the family, as well as a quality annual vacation, and after monthly payments on loans for a car and housing for everyday expenses, they must have at least two regional subsistence levels per person.” Thus, in 2022, “in most regions, a salary of 90 000 rubles is sufficient for a single person to be considered the middle class, and in a family of two, everyone should earn about 70 000 rubles.” See https://riarating.ru/regions/-20220725/630226163.html. Accessed January 20, 2023.

  9. Calculated by the authors using SSHB data for 2021. http://obdx.gks.ru. Accessed January 20, 2023.

  10. In order to determine the subjective assessment of the households' financial situation during the SSHB, respondents are asked to answer the question: “Which of the following statements, in your opinion, is most appropriate for the current financial situation of your household?” by choosing one of the following answers arranged in order of increasing financial capacity. 1. There is not enough money even to buy food. 2. There is enough money for food, but it is difficult to buy clothes and pay for housing and communal services. 3. We have enough money for food and clothing, but we cannot afford to buy the necessary durable goods (TV, refrigerator, and similar items). 4. We can afford to buy food, clothes, necessary durable goods, but we do not have enough money to buy a new car. 5. We can afford to buy food, clothes, necessary durable goods, but we do not have enough money to buy an apartment, a dacha. 6. We can afford everything we would like to acquire.

  11. According to SSHB data for 2021.

  12. Analytical portal of the RF Federal Tax Service. http://analytic.nalog.gov.ru/news/52. Accessed January 20, 2023.

  13. Authors’ calculations based on SPIS data, Rosstat.

  14. According to the operational data of the Federal State Statistics Service. http://view.officeapps.live.com/op/view.aspx?src=https%3A%2F%2Frosstat.gov.ru%2Fstorage%2Fmediabank%2FVVP_kvartal_s%25201995.xls&wdOrigin=BROWSELINK. Acce-ssed January 20, 2023 and according to the data of the Analytical portal of the RF Federal Tax Service. http://analytic.nalog.gov.ru/news/52. Accessed January 20, 2023.

  15. See footnote 14.

  16. The so-called bracket creep is implied when transition to income taxation with a higher rate is caused by inflation rather than the real increase in the income. In this case, the state fails to provide timely revision of the progression levels, which results in an unjustified increase in the tax burden.

  17. Analytical portal of the RF Federal Tax Service. http://analytic.nalog.gov.ru/news/52 . Accessed January 20, 2023.

  18. Ibid.

  19. See: paragraph 2 of Art. 56, paragraph 2 of Art. 61, paragraph 2 of Art. 61.1, paragraph 2 of Art. 61.2, paragraph 2 of Art. 61.3, paragraph 2 of Art. 61.5, paragraph 2 of Art. 61.6 of the Budget Code of the Russian Federation, Letter of the Ministry of Finance of Russia dated July 3, 2015 no. 03-04-05 / 38479.

  20. Federal Law no. 466-FZ dated December 5, 2022, On the Federal Budget for 2023 and for the Planning Period of 2024 and 2025.

  21. In December 2022, official comparable data of statistical tax reporting are available only for the results of 2020. http://www.nalog.gov.ru/rn77/related_activities/statistics_and_analytics/forms/. Accessed January 20, 2023.

  22. The values of the poverty limits per capita and for the main socio-demographic groups of the population as a whole in the Russian Federation and by the federal subjects of the RF for the corresponding reporting quarter or year, starting from the first quarter of 2021, are determined in accordance with the Decree of the Government of the Russian Federation as of 26.11.2021 no. 2049 On Approval of the Rules for Determining the Boundaries of Poverty in the Russian Federation as a Whole and by the Federal Subjects of the RF, used in the estimates of the indicator “Poverty level” in the Russian Federation as a whole and according to federal subjects of the RF, and on Amendments to the Federal Plan of Statistical Work.

  23. The indicator of the subsistence minimum until 2021 was calculated based on the cost of the consumer basket at the relevant time, as well as mandatory payments and fees. In 2021, the subsistence minimum began to be calculated as 44.2% of the median per capita income for the year preceding the year of the establishment of the subsistence minimum. In 2022, on the instructions of the President of the Russian Federation, the per capita subsistence minimum set by the Government of the Russian Federation of 11 950 rubles was increased to 12 654 rubles and then, in accordance with the instructions of the President of the Russian Federation, the subsistence minimum was additionally increased by 10% from July 1, 2022. The minimum subsistence level for 2023 and 2024 is established by the federal law on the federal budget for the relevant financial year and for the planned period.

  24. Decree of the Government of the Russian Federation of February 10, 2021 no. 296-r (as amended on August 11, 2022) On Approval of the List of Indicators of Food Security of the Russian Federation.

  25. Decree of the Government of the Russian Federation of December 16, 2022 no. 2330 On the Procedure for Assigning and Paying a Monthly Allowance in Connection with the Birth and Upbringing of a Child.

  26. Authorities to assess incomes of the richest and poorest 10% of Russians, RBC (rbc.ru). https://www.rbc.ru/economics/11/07/2022/62c8005e9a79472a32116e06. Accessed January 20, 2023.

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  1. Institute of Economic Forecasting, Russian Academy of Sciences, 117418, Moscow, Russia

    E. V. Ordynskaya & M. V. Cherkovets

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  1. E. V. Ordynskaya
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Translated by I. Pertsovskaya

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Ordynskaya, E.V., Cherkovets, M.V. Opportunities for Raising Incomes of Low-Income Groups in Russia Using Tax Regulations. Stud. Russ. Econ. Dev. 34, 516–526 (2023). https://doi.org/10.1134/S1075700723040111

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