Feminism in Russia - Passport magazine

The Way It Is
The
Big
Squeeze
0 April 2011
Art Franczek
The world is experiencing its fifth year of financial crisis. While
some countries (mainly BRIC) are recovering nicely, Europe, the
US and Africa are mired in a financial quagmire. We witness mass
anxiety in many countries such as Egypt, Tunisia, Libya and others
where the Google revolutions were driven by unemployed youth.
In Greece and Spain mass riots occur because of budget cuts and
in the US the Tea Party movement with its misdirected anger has
taken over Congress.
After a negative GDP growth of 9% in 2009, Russia is recovering
well from the crisis. Its GDP is projected to grow around
5% in 2011 and its unemployment rate is around 6%. The recent
rise in oil prices to the $100 per barrel range has allowed Russia
to balance its budget and to generate a budget surplus. Russia
is in good fiscal condition with low debt and huge currency reserves.
Eleven years ago Russia’s tax system was a major deterrent
to foreign investors with an effective rate of over 80% on the
Net Profits Tax and a Personal Income Tax rate of 32%. Tax
evasion was rampant. In 2000 and 2001 Russia completely
reformed its Tax System, a 13% Flat Tax was implemented
on personal income and a 24% (reduced to 20% in 2008) Net
Profits Tax rate was established. The result was increased tax
revenues and a reduction of tax evasion.
Russia’s tax system is still evolving and issues such as Transfer
Pricing and consolidated tax returns are currently being discussed
in the Duma. Recently, Russia signed a new Protocol on
its treaty with Cyprus which allows Russian tax authorities to request
information about the beneficial owner of Cypriot companies
owned by Russians. It also requires that taxes on the gains
of Cypriot companies holding Russian real estate be taxed in the
country where the real estate is located. This change to the Cyprus
Treaty was done by using the OECD Model Treaty and by
threatening to blacklist Cyprus if it didn’t cooperate. Many Russian
companies have left Cyprus, and other countries such as
Luxemburg and Sweden are actively recruiting Russian clients.
The US economy is another story, the 2010 budget deficit was
1.3 trillion dollars and the Congressional Budget Office projects
a cumulative deficit of 7.2 trillion dollars by 2021. Moody’s is already
suggesting that it might downgrade the US AAA credit
rating and speculators are buying Credit Default Swaps on US
debt. The European debt crisis, oil price increase, and a continuing
housing downturn, threaten a very fragile recovery in
the US. The US deficit was generated from a number of factors
such as the Bush tax cuts, lack of financial regulation that contributed
to the crisis and two wars.
US tax reform is at the heart of any budget deficit discussions.
1.1 trillion dollars in tax benefits are given annually to individuals
and corporations. These tax breaks not only increase the
deficit, but cause tax rates to be too high. Instead of promoting
economic growth and competiveness, the current tax code
presents individuals with perverse economic incentives instead
of a level playing field. The Deficit Commission concluded that
the current individual tax system is hopelessly confusing and
complicated, this causes many taxpayers to underreport their
income and taxes, hoping to avoid the audit lottery.
Last year I wrote an article in PASSPORT (Nowhere to Hide,
March 2010) describing the tax inequities suffered by US ex-pats.
I demonstrated how a US ex-pat might pay significantly more
in tax than an ex-pat from the UK simply because he was taxed
based on citizenship rather than residence. This kind of situation
causes many US citizens to renounce their citizenship.