Today, the interest of most entrepreneurs is riveted to a proportional, regressive and progressive tax system. There is constant debate about which is better and under what conditions it is possible to pay less taxes. There are many supporters and opponents of the progressive personal income tax scale, therefore, we will try to understand all the pros and cons of this system in comparison with the proportional tax system. Which is better?
Proportional formation of personal income tax
This system implies a uniform tax base for all. This means that regardless of income, a private entrepreneur will pay a fixed contribution of 13%. Accordingly, whether he is the director of the largest retail chain, who receives about 1 million rubles a month, or a loader with a salary of 10 thousand, he must pay the same percentage.
Of course, this system seems unfair to most public figures, because in this case it turns out that a person with lower earnings is forced to pay the same amount as millionaires. Therefore, today there are more and more supporters of a different, progressive personal income tax scale. Is such a system really more profitable? Let's consider it in more detail.
Progressive Personal Income Scale
If the proportional system implies a flat rate for all businessmen, regardless of their income, then this scale implies a change in taxation for residents, depending on how much the business really brings to its owner. Accordingly, the more a person earns, the more he must pay taxes.
However, it is worth saying that the progressive scale of personal income tax in 2017 is not yet accepted and accessible to taxpayers. To date, bill No. 1148107 is only pending. And if it is adopted, it will enter into force only in 2018, as the economic crisis is still in the country, which does not allow us to immediately switch to a new level of taxation.
If compared with other countries, then, for example, in Sweden, the owner of a private business is completely exempt from taxes if his income is minimal. Only excess profits (exceeding average wages) are taxed.
The progressive personal income tax scale, which may soon appear in Russia, works on the same system. This means that if a resident earned 180 thousand rubles a year, then the tax on this amount will be 0%. If the amount is from 180 thousand to 2.4 million rubles, then already annually 13% will have to be paid into the treasury. With income up to 100 million rubles, you will have to pay 30% and so on, depending on the level of profit. The largest percentage, equal to 70%, will be paid by business owners who receive more than 100 million rubles each year.
It is also worth mentioning that the bill on the progressive personal income tax scale has already been adopted earlier and was valid until 2001. Later, the president of Russia decided to switch to a “flat” tax system, which implied a single percentage for all (13%). Perhaps this decision may seem like a “step back”, but only thanks to this it was possible to increase tax collection, which led to a faster withdrawal of the country from the crisis.
However, the possibility of introducing a more “fair” tax system is still questionable due to many factors. Therefore, we consider the pros and cons of the progressive personal income tax rate that can be expected.
What do opponents of the new tax system think?
If we discard the moral aspect, which concerns what is more true when a person with high earnings pays more taxes, we turn to dry facts.
The fact is that the introduction of a progressive personal income tax scale, although it can help equalize the social status of citizens, but at the same time it can lead to a decrease in real incomes that will be distributed by the population. On this basis, in order for the “rich to pay more,” it will have to significantly increase taxes for the middle class. Accordingly, this system may even lead to a decrease in the poverty threshold, as economic growth will be reduced.
If large entrepreneurs are taxed solely for those who earn a lot, then collecting the necessary profits into the treasury will fail. This is due to the fact that most wealthy citizens use optimized schemes and withdraw their finances through offshore companies. Thus, there will be no choice and will have to increase taxes for individuals and force them to declare their income.
Advantages of a progressive tax system
If a proportional personal income tax scale is left in the country, this will lead to the fact that the poor will always get poorer, and the standard of living of the rich population will only increase.
Therefore, a progressive tax system is the only possible tool to smooth out the existing differentiation. This opinion cannot be ignored, therefore there is a high probability that this system will nevertheless be adopted, as in many other countries.
In this case, with a minimum income, the owner of a small business will be exempt from taxes, which will help him grow faster. Thus, more companies will appear in the country that will receive large incomes in the future, and, accordingly, more and more money will come to the state treasury.
Today, most novice businessmen are afraid to open organizations only because of fear of high tax rates. If at first they don’t have to pay interest, then the number of new IPs or LLCs will constantly grow.
Past experience
The proportional tax system is not new. Before switching to a “flat” personal income tax rate, the amount of tax levies was much higher (about 54), after 2001, when the general income tax was introduced at 13%, there were only 15 left. Thus, with “fair” taxation people had to pay more additional contributions. This was supposed to help the country's economy. However, most taxpayers hid their income and the treasury received nothing.
Initially, the idea of proportional taxation was that if the percentage is lower, then it makes no sense for citizens to hide income. However, based on practice - it turned out the opposite. And only the “flat” personal income tax rate contributed to overcoming the crisis.
Regression system
This type of taxation has not found support in Russia. The essence of this system is that increasing the income of an entrepreneur leads to lower tax rates. This type of personal income tax can lead to even greater social inequality, so he has one unit of supporters.
However, there are those who propose introducing a progressive-regressive personal income tax scale in order to smooth out the possible scatter in the social status of citizens. But today, the talk about the appearance of this system in our country is not even being conducted.
Finally
Of course, the proportional tax system looks like a way to equalize the social status of citizens. However, we must not forget that the overall level of the economy also depends on this. Therefore, to introduce this personal income tax rate does not work out quickly.