Actuality February 20, 2008

Federal Tax Service (FTS) reported about extraordinarily high growth of tax revenues. In January, 2008 as compared to January, 2007

they grew almost by 70%. The growth dynamics of tax collections repeatedly outstrips the growth rates of economy even adjusted for inflation.

According to FTS data, revenues of taxes and collections to the federal budget grew by 67,8% in January as compared to January, 2007

and totaled RUR 372,7 bln. The main part of tax profits of federal treasury was provided with VAT collection (46%) and tax on mining operations (33%).
The stake of income tax is only 9%, consolidated social tax (CST) – 6%, excise taxes – 3%, other taxes and collections – 3%.

Increase of tax revenues as compared to the last year January for most taxes approximately corresponded to the economy growth

and official inflation.

So, tax collection on income of organizations grew by 22,1% (by RUR 5,8 bln) as compared to January, 2007. CST revenues to the federal budget increased by 26,3% as compared to January, 2007. As well or so grew insurance contributions to the Pension fund and to the Federal fund of compulsory medical insurance – by 23,8% and for 27,1% more than in January, 2007.

Collections on severance tax grew proportionally to the world prices on energy sources: as compared to January, 2007 severance tax receipts grew 1,6 times. In this year January the federal budget received about RUR 123,4 bln of severance tax, including oil extraction – RUR 113,6 bln, gas extraction – RUR 8,4 bln and extraction

of gas condensate from all types of deposits – RUR 0,6 bln.

However, the record on collections' growth set the value added tax. In January the receipts from "internal" VAT grew 2,1 times as compared to January, 2007 and totaled RUR 173,3 bln. It is impossible to explain such anomalous high collections by inflation or economy growth.

At the unchanged rate of VAT in 18% the stake of this tax in GDP does not practically change and totals about 3,6-4,5% of GDP. Accordingly, at the normal work of the tax system VAT collections should increase annually proportionally to growth of GDP and inflation.

So, for example, in a three-year budget for 2008-2010 the annual VAT receipts should increase by 12-13%, but not twice in any way.

Meantime, already from the last year autumn FTS reported monthly about 1,5 times growth of VAT collections as compared to the same period of the last year.

"Double growth of tax collections says about unstable work of the tax system, at which the period of shortages is followed by the period of the real tax racket, at which taxpayers are forced to pay taxes for future periods or pay the so-called commissions on taxes off", says Mikhail Orlov, the head of expert council of taxation budget committee of the State Duma. According to him, passing to VAT collection on the charges method in 2006 caused shortage on this tax. Because of that, in 2006 tax officers began to wheedle money out of enterprises, compelling them to pay VAT on account of future periods. As a result in January, 2007 VAT collections appeared low, and as compared to this level the current January "jumped" out more than twice.

"It is possible to explain the January VAT growth by two reasons.

At first, by unexpectedly low revenues in January, 2007 over the passing to the charges method. And secondly, by the increase of tax basis over the vigorous inflation in January and at the end of 2007", considers the expert of

the Economic expert group of Aleksander Suslin.

"Growth of VAT collections in 2007 as compared to 2006 is in the great deal explained by revenues to the budget of about RUR 239 bln that were credited as repayment of Yukos tax indebtedness", an expert supposes. After deduction of these facilities, exceeding of VAT collection totaled only about 30% at par value.

"It is impossible to talk about outstripping growth of VAT collections, as an increase of revenues on this tax is explained by nonrecurring "payments", and also by VAT reaction to the changes of other macroeconomic indices", Suslina considers.

"The growth of tax collections was influenced by the increase of the actual load on VAT, as lately in the tax code increased the list of cases when organizations are forced to restore VAT which was earlier accepted to deduction", adds Andrey Prikhodko, the department head of accounting and tax advisory firm BKR-Intercom-Audit.

In the Ministry of Economic Development and Trade and the Ministry of Finance could not comment the anomalous growth of tax collections. The Ministry of Finance officials register tax collection in relation to the annual task, but not to the past periods, and from such angle the double growth of VAT collections hides behind 2-3% of the planned task.

According to the data of the Ministry of Finance, for January, 2008 collection of profits of federal budget totaled RUR 699,12 bln, or 10,5% to the planned assignment for 2008. Also, FTS collections totaled RUR 373,19 bln, or 11,2% to the prospect indices of 2008. "We are not engaged in the analysis of FTS data and reasons of collections growth in relation to the last year", declared the representatives of the Ministry of Finance.