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Recent Russian Debate on Moving from VAT to Sales Taxes and Its Global Implications

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  • Vera Kononova
  • John Whalley

Abstract

We discuss recent policy debate in Russia on moving from the present value added tax to a sales tax structure covering households, government and exports. What is distinctive in this debate is the range and nature of problems identified with the VAT, most of which stem from its multistage credit-invoice mechanism. These include false credit and refund claims, delays and difficulties in obtaining legitimate input credits and refunds reflecting responses of tax authorities to false claims, difficulties for large firms dealing with small firms, and resulting uneven effective tax rates between energy and manufacturing sectors. For the Russian economy being heavily dependent on oil and gas exports and seeking diversification, the VAT effectively places industrial companies at a significant disadvantage, particularly compared to exporters of energy resources. These problems are all intensified by the relatively high statutory rate of 18% in the Russian VAT. We describe and document the debate, discussing in detail what the perceived Russian problems with the VAT are. We suggest that many of the difficulties reflect the multi staging in the credit-invoice mechanism in the VAT, rather than the VAT per se. We discuss the possible use of the subtraction and addition methods in the VAT as an alternative to the sales tax proposed. We also report estimates of possible changes in effective tax rates across sectors if the sales tax were enacted. The final outcome of this debate is not yet known. A special commission of the Presidential Executive Office of the Russian Federation was to report on the matter in 2009, however, due to the economic crisis a decision on VAT/sales tax has been postponed. Despite this, in the near future a change to a sales tax could possibly follow. We suggest that were this to occur this would be a precedent setting move away from the value added tax. With IMF and World Bank conditionality no longer the force that it was for policy change in large economies such as Russia, India, China and Brazil, similar re-examinations could follow elsewhere.

Suggested Citation

  • Vera Kononova & John Whalley, 2009. "Recent Russian Debate on Moving from VAT to Sales Taxes and Its Global Implications," NBER Working Papers 15615, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15615
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    References listed on IDEAS

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    1. Emran, M. Shahe & Stiglitz, Joseph E., 2005. "On selective indirect tax reform in developing countries," Journal of Public Economics, Elsevier, vol. 89(4), pages 599-623, April.
    2. Keen, Michael & Lockwood, Ben, 2010. "The value added tax: Its causes and consequences," Journal of Development Economics, Elsevier, vol. 92(2), pages 138-151, July.
    3. Keen, Michael & Smith, Stephen, 2006. "VAT Fraud and Evasion: What Do We Know and What Can Be Done?," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(4), pages 861-887, December.
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    Cited by:

    1. Carbonnier Clément, 2013. "Pass-through of Per Unit and ad Valorem Consumption Taxes: Evidence from Alcoholic Beverages in France," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 837-863, September.
    2. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes," Working Papers halshs-00872477, HAL.
    3. Paul E. Carrillo & M. Shahe Emran & Gabriela Aparicio, 2011. "Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador," Working Papers 2011-02, The George Washington University, Institute for International Economic Policy.
    4. Jon Bakija & Ivan Badinski, 2014. "Evidence on the Responsiveness of Export-Related VAT Evasion to VAT Rates in the EU," Department of Economics Working Papers 2014-06, Department of Economics, Williams College.
    5. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes, estimation on prices of alcoholic beverages in France," THEMA Working Papers 2011-20, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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