Five-stage tax model: what will change for employers and ordinary citizens

The changes to the tax system were previously prepared by the Ministry of Finance. They include a transition to a five-tier tax scale for citizens, as well as some changes for businesses.

According to the document, the increase in personal income tax will not affect all citizens; Income will be calculated at an increased rate, starting from 2.4 million per year. In this case, the rate will be 15% instead of 13%. For income from 5 million rubles to 20 million rubles per year, the rate will be 18%. For income from 20 million annually to 50 million annually, the tax will be calculated at a rate of 20%. Citizens with annual income greater than 50 million will pay a tax rate of 22%.

The document emphasizes that only income that exceeds the specified limits will be taxed at a progressive rate, and not the entire amount.

RB.RU learned from a lawyer how the changes will affect the lives of citizens and what costs the country’s financial system may face.

Oleg Dulsky, senior legal advisor at law firm Afonin, Bozhor and Partners, explained how the tax will be calculated under the new rules.

How personal income tax will be calculated under the new scheme

According to the document, a 15% rate starts with an income of 200 thousand rubles per month. Now, if an employee of a certain company with an income of 174 thousand rubles (200 thousand before taxes) wants a monthly increase of up to 200 thousand, the tax will be calculated according to the following scheme:

The part of the salary that does not reach the established limits, that is, up to 200 thousand, will be subject to a rate of 13%, which is equivalent to 174 thousand rubles in hand. The excess portion will be subject to a rate of 15%, that is:

Thus, according to the new rules, the employer must set the salary at 230,588 rubles so that the employee receives 200,000 rubles in hand. And according to the current model, this amount would be equal to 229,885 rubles.

According to the lawyer, the changes may imply an additional financial burden for those businessmen involved in mining, information technology, etc. That is, for companies with traditionally high salaries.

Announcing the amendments, the Finance Ministry said the new rules would not affect more than 3.2% of citizens. According to Dulsky, verifying the accuracy of such an assessment is problematic.

“Rosstat publishes information on the distribution of average monetary income per capita only up to an indicator of more than 100 thousand rubles per month, the value of which for 2023 will be 11.2%. In this sense, based on public sources, it is difficult to give an objective assessment of the indicator indicated by the Minister of Finance,” explains Dulsky.

Costs for employers and the government

• The lawyer points out that the new tax scale will force some companies to index salaries less frequently, since increasing salaries will be more costly for companies. At the same time, Dulsky notes, today the labor market is experiencing a shortage of highly qualified personnel, so employers will most likely incur additional costs to pay more “expensive” wages.
• The most likely risk to the state budget is the growth of the underground economy, which could result from the new tax rules.
• Furthermore, the introduction of a progressive tax system can lead to an increase in inflation due to the need for companies to compensate for increased costs, explains the expert.

Typically, countries use progressive taxes to balance the gap between citizens with lower purchasing power and those with higher incomes. Today, a five-level scale operates in Belgium, Austria, Italy and New Zealand. However, as Dulsky points out, changing the tax model alone is not enough to reduce the socioeconomic gap between the population.

The lawyer cites the example of the experience of South Africa, where a six-step scale has been in force since 2013, but the socioeconomic gap is still very noticeable in the country.

What instruments will the State use to smooth the transition to a new model?

• Oleg Dulsky recalls that initially the government discussed the lower limit of the 15% rate of 1 million rubles per year (83,300 rubles per month). But this idea was abandoned, resulting in the new rules affecting a smaller percentage of Russian taxpayers.
• Tax only the excess with higher income, and not all income, as in other countries with a similar model.

Market participants and experts explained to RB.RU how the changes in the Tax Code will affect Russian small businesses.