Winter Games

By Global Tax Weekly

It’s easy to have a go at Russia this week, and almost everyone is doing it, between its cack-handed attempts to influence Ukrainian affairs and the giant, gilded hostage to fortune represented by the Sochi games which are close to turning Vladimir Putin into a laughing stock. So here is a rare bouquet for the Economic Development Ministry, which has sensibly proposed to reduce the rate of tax imposed on people who rent out their apartments. Well, perhaps it is sensible, and perhaps not. It sounds good, but if as they say 95 percent of private landlords are evading the 13 percent income tax that should apply right now, why would a reduction to 12 percent or 11 percent make any difference? Even if the rate was reduced to 5 percent, no-one will pay it, because paying it involves declaring the income and its source, and presumably all these shadow tenants pay in cash, and won’t be at all happy to have their names revealed to the tax authority. Because where did they get the cash? There is plenty of multiple apartment ownership in Moscow, not least because during privatization anyone could privatize their flat for peanuts, so if your parents then died you got their flat as well, and now you have at least those two flats (without mortgages). This is why governments almost always resort to withholding taxes in order to fix on individual income streams, and why they try to minimize the use of cash. Property tax is more effective, because every property has to be registered in someone’s name; but in Russia tax on individual property is minimal, and regional into the bargain, so central government doesn’t get to see anything from it. Hence the proposed attempt at catching tenancy income. Anyway, it’s only a proposal, from the Economic Development Ministry, the descendant of the old Gosplan Ministry, which is way down the pecking order, and it will probably be ignored. So, bouquet rather faded.

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