The Flat Tax at Work in Russia: Year Four, January-June 2004

July 19, 2004
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The Flat Tax at Work in Russia: Year Four, JanuaryJune 2004

by Alvin Rabushka

The Ministry of Taxation of the Russian Federation has reported the taxes and fees collected for the period JanuaryJune 2004. The data show that the 13% flat tax on personal income continues to achieve very positive results.

During JanuaryJune 2004, the Ministry of Taxation collected 252.4 billion rubles ($1 = R29.1) in personal income tax receipts, an increase of 27.7% over the comparable period in 2003. After adjusting for annualized inflation of about 1112% in the first half of 2003, personal income tax revenue rose at an annualized real rate of about 16% in the first half of 2004 as against the same period in 2003. This growth builds on real ruble revenue increases of 25.2% in 2001, 24.6% in 2002, and 15.2% in 2003. If real ruble revenues rise at about 16% for all of 2004, total real receipts from the personal income tax will have more doubled over four yearsdespite a reduction in the top rate from 30% in 1999 to 13%. (See "The Flat Tax at Work in Russia: Year Three.")

The 27.7% nominal growth in personal income tax receipts continues to outpace the overall rise in taxes and fees collected by the Ministry of Finance, which grew by a less robust 17.9% for JanuaryJune 2004 compared with the same period in 2003. The 13% flat tax on personal income has steadily grown in importance as source of revenue during the past three-and-a-half years.

(Angela and Diana Kniazeva, graduate students in the Department of Economics, Stern School of Business, New York University, kindly provided research assistance for the preparation of this article)