On Social Justice

Russia, once again, boasts to impose the luxury tax. First, Prime Minister Vladimir Putin started talks about taxing rich. Then the initiative has been taken on board by the parliamentary party ‘A Just Russia’. The MPs propose a progressive tax of 1% - 5% on cars worth over $100,000 and on real property of $1 million or more.

The idea may seem strange, since Russia remains a country with an incredibly unfair system of taxation. Here, the poor pay more and the rich pay less. The system is tailored to increase the already enormous gap between different parts of the society.

Why, for starters, not to raise the rate of income tax on the wealthy?

It is worth remembering that low taxation of the rich in Russia is due not so much to somewhat distorted views of the Kremlin on social justice as to its inability to collect taxes. The key to understanding Russian taxes is that the government imposes those duties it can gather with ease - payroll taxes, VAT and excise duties.

Collecting taxes on expensive cars is relatively simple. The task can be delegated to the sellers or importers of vehicles. Tax on real estate is much more difficult to assemble and the imposition of the tax can push the market to the ‘grey zone’.

Overall, the luxury tax is just a political move ahead of the elections: actual revenues will be minimal and it has nothing to do with narrowing the gap between the rich and the poor. Instead, one can claim to care about social justice.