The President of Russia signed the law on the increase of VAT to 20%
The law will come into force on January 1, 2019.
The government officially put forward a proposal to increase the VAT to 20% in June. According to the assessments of relevant agencies, the measure should ensure the receipt of more than 600 billion rubles in the budget annually.
The economic justification for the document indicated the amount of 620 billion rubles per year, starting from 2019.
"Currently, while selling goods (works, services) on the territory of the Russian Federation the value added tax is paid at a rate of 18, 10 or 0 percent", — stated in the explanatory note.
The authorities do not plan to change preferential and zero rates.
The draft law also states the establishment of a zero VAT rate until 2025 for passenger transportation to the Far Eastern Federal district, as well as the extension of the zero rate for aviatransportation to the Crimea and Kaliningrad.
Another amendment adopted concerns the possibility of deducting the amount of VAT on goods purchased through subsidies received before 31 December 2018. This measure is important for agricultural producers and organizations implementing projects for the construction and reconstruction of roads.
The government promises to spend the proceeds on solving problems of infrastructure, education and medicine (the total costs under the "May decree" of the President are estimated by the government at 8 trillion rubles).
In addition, the draft law regulates new rates of tariffs for insurance contributions for obligatory pension insurance. They are set at the rate of 22% within the specified threshold and 10% higher than the set limit values.
The increase of the VAT rate will affect both business and citizens. This will inevitably lead to an increase in the price of goods, especially food and medicines.
The price increase can be from one to several percent.
“The increase of the tax burden on business will affect the reduction of entrepreneurial activity, the pace of economic growth; small and medium-sized businesses will be replaced by large companies that have their own production, logistics and sales”, believes David Abramyan, head of the legal practice of the company "Prifinans".
According to co-Chairman of "Business Russia" Andrey Nazarov, the amendments will mostly affect the industries with high added value and complex production.
"In order to compensate the reduced marginality manufacturers, most likely, will include these costs in the final price, at the same time, the increased prices will lead to a moderate decline in demand. And if each counterparty include their costs in the cost of services, the price increase can reach 15-20%. The tax burden will also hit the construction sector, the automotive industry, and machine building. And imported goods will get a head start", he said.
According to the estimates of the Department of research and forecasting of the Central Bank, the effect of VAT increase on inflation can be 0.8-1.25 percentage points. Analysts expect "with high probability" during the next year, "a temporary acceleration of inflation slightly above" the target level of 4% due to the increase of VAT.
In Russia, inflation expectations are not anchored, and there is a high probability of secondary effects, noted the financial regulator in the July Bulletin "What do the trends tell about". The VAT increase was taken into account at the last meeting of the Bank of Russia: the regulator left the key rate of 7.25% unchanged.
In addition, the Central Bank warned that the direct negative effect of the growth of the tax burden could be about 0.5 percentage points of GDP.
However, analysts hope that taking into account the offsetting increase in costs the cumulative effect on GDP may be positive.
Experts warn that with the growth of VAT, we will see an increase in consumer prices and, as a result, a decrease in real incomes of population.
It should be reminded that the decline in real incomes continued for the last four years. According to Rosstat, in 2014, it was about 0.7%, in 2015 - 3.2%, in 2016 - 5.8% and in 2017 — 1.7%. The growth rate of income of Russians fluctuate around zero for the second month in a row - in May, it increased only by 0.3% in annual terms, and in June — by 0.2%, reported Rosstat. According to experts' forecasts, next year real income, as well as during previous four years, is likely to decline again.
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