Promises, Promises

The road to hell is paved with good intentions.

In March Dmitry Medvedev asked the government to reduce national insurance contributions, a levy on payroll. In June, at the international economic forum in St. Petersburg, the President announced a reduction in NIC's rates from 34% to 30% (for small non-trade businesses - from 26% to 20%). ‘This is certainly not a radical drop,’ he said, ‘but it is a landmark and a favourable move for a large number of small and medium-sized businesses’.

So it seemed as if the matter had been settled.

The Ministry of Finance, however, then proposed to increase the levy on the wealthy in order to compensate for lost revenues, and by wealthy they meant those earning over 512,000 roubles ($17,600) a year. The Ministry of Economic Affairs insisted that no additional tax should be set.

A heated discussion followed, in spite of the fact that it was immediately clear that the widely touted tax cut would turn out to be a tax rise for the middle class.

The debate is now over. Yesterday the Ministry of Finance published ‘The Main Directions of Tax Policy of the Russian Federation in 2012 - 2014’. According to this document, already approved by Vladimir Putin, the rate of payroll tax will be set at 30% for wages up to 512,000 roubles per year plus 10% on amounts above this threshold.