Experts discuss implications of VAT rise

Hiking the value added tax (VAT) from 18% to 20% will spur on inflation and, consequently, lead to a decrease in Russians’ incomes, BBC reports quoting World Bank experts.

Russia plans to increase the VAT from January 1, 2019. According to experts, most goods are taxed several times, so a 2% rise may result in a significant increase in prices. At the same time, World Bank experts believe that if the VAT burden is shifted entirely on the consumers (as is usually the case), their disposable incomes will decrease by 0.8%. The least affected will be pensioners, while families with one child or with three or more children will suffer the most.

Furthermore, experts believe that the tax increase will affect low-income people more strongly, because their savings are smaller and they spend most of their income on current consumption.

“The state’s share in the Russian economy is growing steadily, and the state needs to be supported. Therefore, the tax burden on businesses and citizens will inevitably grow,” economist Sergei Khestanov, associate professor at RANEPA, notes. “With the possible reduction of the resource rent, the role of citizens in providing for the state will grow. And the state’s appetite has always been good.”

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