Reform of Payroll Taxation: Poor Will Pay More, Rich - Less.

-- 27 July 2009 --
TEXT: J. VERMIN

Russians get older and fewer. The reform of social security contributions was blueprinted in the fat 2008, and even the crisis could not prevent it.

On July 17, the State Duma approved in the third and final hearing two federal laws that change the system of payroll taxation. The new regime is deemed to increase the amount of tax collected. It will make the strong stronger, and the weak weaker.

Today companies and entrepreneurs pay the unified social tax at the rate 26% on salaries up to 280,000 roubles (app. USD9,000) a year, 10% - on the next 320,000 roubles (app.USD10,300), and 2% - on remunerations above 600,000 roubles (USD19,300).

From January 1, 2010 the unified social tax will be abolished. Instead, employers will make contributions to separate funds: the state pension fund, the social security fund, and the medical insurance funds. Ironically, this means the return to the system which existed until 2001 when the unified social tax was introduced.

Russia will remain an attractive destination for the foreign labour.
 

The laws introduce a flat rate of social duties and only the first 415,000 roubles (app. USD13,400), or 135% of an average salary in Russia, will be taxable. In 2010 the rate will remain 26%, the same as in 2009; in 2011 it will go up to 34%. For small companies, though, the introduction of the flat scale will mean a heavier burden as early as in 2010, because salaries in the range 280,000 - 415,000 roubles will be taxed at the rate 26% instead of 10%, in 2009.

According to the new law the payroll taxes on the salaries of foreigners temporarily working in Russia are not payable. With income tax only 13% Russia, therefore, will remain an attractive destination for the foreign labour. Small and medium domestic enterprises on the other hand will feel a dramatic, some experts say triple, increase of the tax burden.

  

  

Russians get older and fewer. The reform of social security contributions was blueprinted in the fat 2008, and even the crisis could not prevent it.