Tatarstan authorities begin to hunt for 'secret millionaires' amid falling tax revenues
The chief tax officer of Tatarstan told whose income tax deductions are falling, how to open “envelope” salaries, and that the ministry of finance is preparing the sequestration of capital objects
The “financial bonds” of the Tatarstan consolidated budget 2020, which they barely managed to “tighten” in the third quarter, turned out to be loosened. Due to the deterioration of the economic situation, tax collections on the main revenue source of the treasury — income tax — collapsed by 43% at once, Marat Safiullin, the head of the Federal Tax Service of Tatarstan, sounded the alarm during a meeting of the “financial headquarters” on 2 November. In response, President of Tatarstan Rustam Minnikhanov warned businesses to avoid “gray schemes” of tax evasion under the pretext of the pandemic, and the tax authorities began to look for hidden reserves in “envelope” salaries and are preparing to shake the rich with expensive real estate but without official earnings to pay property tax.
Tatarstan's consolidated budget sank by 16,5%
Tatarstan's consolidated budget 2020 suffered less severe and deep losses under the onslaught of the pandemic than it could have been, but its impact turned out to be tangible — minus 16,5% of revenues. Such data was provided on 2 November by President Rustam Minnikhanov at the republican meeting of financial, treasury and tax authorities of the Republic of Tatarstan on the results of budget execution.
Minnikhanov reminded that the implementation of the consolidated budget was taking place in difficult economic conditions, under the influence of volatility in oil prices and the dollar exchange rate, which caused a decrease in production and consumption. But due to the uncertainty of the epidemiological situation, it is even more difficult to predict further events in the economy. The president noted that changes in the tax legislation providing for the abolition of mineral extraction tax benefits and export duties on ultra-viscous oil will put an additional burden on the budget. For this reason, the budget deficit may be larger than planned.
At the very beginning of the meeting, Minnikhanov “took the heat” — he personally announced the current economic indicators of the republic, which were previously reported by the minister of economy of the Republic of Tatarstan, Midkhat Shagiakhmetov.
The president outlined the extent and dangers of “wounds” in the economy. According to him, the volume of GRP for the period amounted to 97,9%, industrial production index — 97,6%, a decline in construction — 1,9%, in retail trade — 1,9%. Budget revenues amounted to 171,9 billion rubles. “Despite the limited funds, we made all socially significant expenses in a timely manner, including the payment of salaries and social benefits. Significant additional resources were allocated to protect people's health," said Rustam Minnikhanov, giving the floor for the report to the head of the Federal Tax Service of Tatarstan, Marat Safiullin.
“The crisis did not seem so severe, but nevertheless it had a significant impact on the economy," the chief tax officer of Tatarstan agreed with the general assessment of the situation. According to him, a reduction in tax deductions to the republican budget was 24%, including by 13% to the consolidated budget. According to his report, the budget was kept at the expense of regular income from personal income tax, insurance premiums increased by 1 billion rubles to 117,9 billion rubles.
Budget suffered in income tax revenues
A significant failure in tax collection was in income tax, which directly depends on the results of financial and economic activities of companies. After Safiullin's report, the president of the Republic of Tatarstan instructed to keep personal income tax receipts under control, since income taxes depend on external factors and are difficult to administer. Nevertheless, the tax authorities intend to continue the watch for company profits. “The difficult economic situation indicates the need to be prepared for new unknown risks and to stop them in a timely manner. Under these conditions, it is unacceptable to underestimate tax revenues and even non-payment," Safiullin urged.
The sharpest decrease in tax collections for 9 months of this year in Tatarstan was from income tax. Its volume fell by 43%, or by 31,8 billion rubles. According to the speaker, 42,1 billion rubles were collected instead of 73,9 billion rubles. The income tax is the main source of replenishment of the republican budget, Safiullin reminded. Later, Finance Minister Radik Gayzatullin reported that deductions for this tax were reduced by 63-100% by many large companies in Tatarstan. For example, Tatneft reduced its deductions by 63% — by 21 billion rubles, small oil companies — by 48%, to 2 billion rubles, Lukoil and Ritek — by 91%, to 885 million rubles.
Expressing concern about a reduction in tax collection, Tatarstan President Rustam Minnikhanov warned against “gray schemes” of tax evasion under the pretext of the pandemic. “The main thing is that we need to understand where getting financial results is justified and where the desire to understate our tax obligations prevails," he said.
The head of the Federal Tax Service of the Republic of Tatarstan Marat Safiullin noted that “strengthening the tax administration measures will be applied to those who use 'gray schemes' of tax evasion”. He promised that “those who lowered taxable profit sharply or showed losses will be subject to control measures”.
Tax authorities will aim under-the-table salaries...
The tax authorities will have to aim the under-the-table salaries to keep control over personal income tax collections. According to the results of 9 months, they managed to collect 55,4 billion rubles instead of last year's 56,3 billion rubles, or by 913 million rubles less.
Two factors affected. First, there was a decrease in payments based on the results of the tax statement campaign. Last year, the campaign brought the treasury a one-time payment of 1,36 billion rubles. Second, large industrial companies and banks stopped paying dividends due to the deterioration of their financial results. “Without these two factors, the growth rate of personal income tax collections would be 102,8%," Marat Safiullin added. At the same time, he noted that a recovery began in the third quarter, personal income tax payments increased by 7% and brought the treasury 1,36 billion rubles. “Dear colleagues, please keep the trend in the fourth quarter of this year," he addressed the audience.
At the same time, the tax authorities are not going to sit idly by and intend to bring the “gray” labour market out of the shadows. There is nothing fundamentally new in this approach, but in the conditions of a total drop in tax collections, their actions will be more decisive.
According to Marat Safiullin, the work on the legalisation of wages is actively underway. Since the beginning of the year, more than 4,000 employers have been heard at the commissions, of which almost 80% have adjusted their obligations. However, the result turned out to be impressive. According to the Federal Tax Service of the Republic of Tatarstan, it became possible to raise additional 118 million rubles of personal income tax and 258,3 million rubles of insurance contributions to the Pension Fund.
In 7% of Tatarstan companies, wages are lower than in the industry, and sometimes even lower than the minimum wage. This is especially true in construction, trade and transport services.
Safiullin gave an example of how the tax authorities identify “gray” salary schemes. As it followed from his speech, the tax authorities resort to comparing the payroll under 6-NDFL and the payroll in the current accounts of employees. For example, an employer “showed” the payroll under 6-NDFL statement in the amount of 11,2 million rubles, while in fact he transferred 22,8 million rubles to employees. When analysing salary payments, the tax authorities found a difference of 11,6 million rubles. As a result, the company was charged an additional amount of 1,5 million rubles under the audit statement and fined 18,000 rubles. At the same time, the speaker warned the tax authorities against excessive administrative pressure on businesses.
... and begin “to hunt” for the rich
By December 1, citizens are to pay property tax of 7,9 billion rubles. Marat Safiullin noted that there are enough individuals who own a lot of expensive real estate and cars but do not have sources of income. In other words, they actually have nothing to pay tax with. “We analyse the statements under 2-, 3-, 6-NDFL and see that a person does not earn anything but owns property worth hundreds of millions of rubles. The tax authorities selected 2,000 such rich people. “Two hundred and thirty-four citizens were charged a tax of 136 million rubles," the speaker said.
From January 1, the rate increases from 13% to 15% for income exceeding 5 million rubles a year. According to the tax authorities, this will increase by 1 billion rubles next year.
In particular, the head of the Federal Tax Service focused on the self-employed, to whom the tax authorities are loyal. “More and more people are switching to this tax regime. More than 900 people are registered every week. Today, the figure has grown to 96,000 people, or one and a half times more than at the beginning of the year. They transferred 185 million rubles of tax. Seventy per cent of them did not pay taxes at all before," Safiullin said.
There are such moments...
Modern digital services of tax authorities allow them to quickly identify those who are “at risk of tax offenses”. “We try to eliminate violations and create a clean tax environment," Marat Safiullin explained the goal of total control over taxpayers. At the same time, the tax authorities ask first to voluntarily “clarify” tax obligations, and then use pressure. Due to their analytical work, they received additional 1,3 billion rubles.
Tatarstan Finance Minister Radik Gayzatullin reported on budget expenditures, noting that national projects are being financed without interruptions (17 billion rubles have already been spent out of the planned 18 billion rubles). He warned that the capital construction programme is being sequestered next year. Currently, there are 216 objects under construction that cannot be completed within 3 years. Their total amount is over 10 billion rubles. However, it is expected that this year the objects worth only 7,4 billion rubles will be commissioned.
In his closing speech, Rustam Minnikhanov noted that it is necessary to clearly monitor the economic budget parameters and respond in a timely manner. First of all, this applies to income tax, revenues from which decreased by 43%. “It is important to understand where the deterioration of financial results is justified and where the desire to take advantage of the situation and lower tax liabilities prevails. There are also such moments.”