NCPA - National Center for Policy Analysis

Russia's Flat Tax

September 3, 2003

On January 1, 2001, a 13 percent flat tax on personal income took effect in Russia. It replaced a three-tiered system with a 30 percent top rate on taxable income exceeding $5,000. The old system was complicated, and because of the high rates evasion was widespread. It also produced little revenue. The new flat tax has achieved greater compliance due to its simplicity and low rate. It is producing far more revenue than the former system, says Alvin Rabushka (Hoover Institution).

During its first two years, Russia's 13 percent flat tax exceeded all expectations:

  • In 2001, the first year under the flat tax, personal income tax revenues were 28 percent higher than in 2000, after adjusting for inflation, and rose another 20.7 percent in 2002 compared with 2001.
  • For the period January to June 2003, compared with the same period last year, personal income tax revenue increased 31.6 percent.
  • After adjusting for anticipated inflation of about 15 percent annualized over 2003, real rubles from the personal flat tax increased 16.6 percent year-over-year.
  • The share of tax revenue from the personal income tax rose from 12.1 percent in 2000 to 12.7 percent in 2001.
  • In 2002, the flat tax generated 15.3 percent of total tax revenue.

The United States and other developed countries could learn from the experience of Russia and other emerging market economies, says Rabushka.

Source: Alvin Rabushka, "The Flat Tax in Russia and the New Europe," Brief Analysis No. 452, September 3, 2003, National Center for Policy Analysis.

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