Progressiveness Assessment of the Value Added Tax in Russia

The issue of tax burden distribution among the population is frequently discussed in Russia. In particular, some authors argue that the VAT burden is regressive and advocate for expanding the list of goods subject to the reduced VAT rate. However, most of these studies focus on comparing aggregate consumption and disposable income as tax bases. This paper, by contrast, concentrates on identifying which categories of expenditure in Russia are subject to progressive or regressive VAT treatment, as such estimates can inform proposals for specific tax design reforms. To analyse the structure of VAT burden distribution, data from the Russian Longitudinal Monitoring Survey (RLMS), conducted by the Higher School of Economics, is employed. Total consumption expenditure is divided into the following categories: current consumption, expenditure on durable goods, investments in human capital, and spending on entertainment and leisure. Based on the distributional analysis, it is found that the structure of household consumption remained stable over the period from 2007 to 2019. During periods of declining income, a decrease in the progressivity of the VAT scale is observed. This is due to higher-income groups reducing their expenditure on durable goods in favour of current consumption and investments in human capital – both of which are often subject to zero or reduced VAT rates. Among all categories, only investments in human capital display a regressive VAT burden distribution. VAT design proves to be progressive for spending on leisure and entertainment, primarily due to the inclusion of expenditure on tourist trips, which are subject to the standard VAT rate.