Academic journal article Asian Social Science

Delineation of Powers between the Federal and Regional Levels of Power in the Field of Tax Relieves: Fiscal Consequences

Academic journal article Asian Social Science

Delineation of Powers between the Federal and Regional Levels of Power in the Field of Tax Relieves: Fiscal Consequences

Article excerpt

Abstract

The article's objective is the research of delineation of tax powers with regard to stating tax preferences in the Russian Federation and their influence on the nature of tax competition and the consequences for budgets. It emphasizes that no analysis of the fiscal effect of tax preferences and control of the shortfall in tax revenues of the budget is performed on the government level. It is partially related to the unsolved state of the problem of tax relieves identification. It shows that the adopted in Russia mechanism of granting tax relieves for the regional corporate property tax includes excessive government control on the federal level, which incurs reduction of the level of vertical tax competition. As a result of such distortion, a shortfall in revenues of regional budgets emerges. Assessment of such revenues is neither made by the federal authorities nor by the regional are ones; and the respective losses of regional budgets not compensated by the federal budget. Through the example of the corporate property tax, it is illustrated that the main part of the shortfall in revenues relates to the preferences provided at the federal level. It is also revealed that the establishment of the institution of a consolidated group of taxpayers in the Russian Federation since 2012 had adverse impact on the powers of the regions of the Russian Federation in terms of their administration of the tax base of the territory. The distortion of the horizontal tax competition between regions for the taxpayer took place, as within a consolidated group of taxpayers, the net financial result of the group members suffers the tax, which contributes to erosion of the tax base (Base Erosion) with regard to the corporate profit tax. As a result, the amount of tax revenues to the regional budget does not depend on the actual contribution of each region to creation of favorable tax climate for investors.

Keywords: tax authority, tax relief, tax competition, corporate profit tax, corporate property tax, regional budget

1. Introduction

For modem Russia, high centralization of tax powers on the federal level of administration is typical. Regional authorities have minor powers regarding administration of the tax base, which is the source of their budgets' revenues. According to Article 12 Clause 3 of the Tax Code of the Russian Federation, the federal government states all essential elements of taxation with regional taxes and determines the taxpayers, and the limits of the power of the legislative (representative) authorities of the regions of the Russian Federation in the area of tax relieves are stated on the federal level. As a result, the opportunities of regions in creation of tax incentive mechanisms are rather limited. Nevertheless, regions try to actively use the tax relieves for attracting investors to their territories. Purposefully, the essence and the destination of tax relieves have been the object of focus of scientists and experts for a long period of history.

Perception of tax relieves has evolved from their total negation, which was substantiated by the statements that relieving the privileged categories from taxes contradicted the principle of the universality of taxation, and the tax was considered as a merely fiscal tool of replenishment of the public treasury, to their justification with respect to socially under-privileged people. There is a large number of scientific papers, which argue the practicability of tax relieves because they make the taxation system more complicated, provoke increasing costs for ensuring compliance with the legislation by the taxpayers and for the tax administration (Toder, 2005; Toder et al., 2002; Estimates of Federal Tax Expenditures for Fiscal years 2009-2013, 2010; Tatarkin & Sidorova, 2010), increase the tax expenditures of the government (Shick, 2007, Kraan, 2004; Villela et al., 2010).

The modem Russian society mainly understands tax relieves as certain privileges to certain categories of taxpayers offered in compliance with the current situational preferences and campaign promises (Bykov, 2013; Savina, 2013), however, no due analysis of the caused effects and the government control of the missed tax revenues are being carried out. …

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