Advantages and disadvantages of direct and indirect taxes. Are Russians threatened by progressive taxation?

At all times, governments of various countries have actively resorted to the use of indirect taxes to cover government spending.

Indirect taxes are taxes on expenses and those who spend more pay them more, that is, these are taxes on consumption. The payer of such taxes is always the final consumer of products, works and services, purchasing them at a price that already includes the tax. The peculiarity of these taxes is that they are transferred to the budget not by the one who pays, but by the one who collects taxes from buyers when they sell goods, perform work, or provide services, which is why they are called indirect.

Indirect taxes are taxes that, by their economic nature, are a premium to the price of goods, works (services) sold. These are value added tax, payments calculated from proceeds from sales of products, excise taxes, sales tax, and other fees on revenue.

To assess the effectiveness of the indirect tax system in world practice, various criteria are used, the most important of which are:

- neutrality: the tax should influence the manufacturer’s command and the buyer’s choice as little as possible, i.e. economic distortions from the introduction of a tax should be minimal;
- fairness: the tax should produce politically acceptable income distribution consequences, i.e. the tax must be accompanied by corresponding changes in other taxes or in the system of social payments;
- price stability: the tax should not lead to inflationary processes both during the introduction of the tax and in the long term;
- profitability: the tax must provide the state with the necessary revenues and, as far as possible, prevent avoidance and evasion of payment;
- administrative simplicity: the tax should strive to minimize the costs of its calculation, payment by the taxpayer, as well as collection and monitoring of payment by the tax authority.

By their economic nature, indirect consumption taxes can be classified as universal (VAT) and special (excise taxes).

In modern taxation theory, there are two main systems for collecting indirect taxes:

one-stage collection:

multi-stage collection.

A single-stage levy involves levying a tax once at the production or distribution stage. In this case, three subsystems are possible:

manufacturer tax:

wholesale tax;

retail sales tax.

Producer tax is levied only in the manufacturing sector. A particular advantage of this collection system is the low cost of tax administration, since the number of tax payers is small and the objects of taxation are quite impressive. But this advantage is outweighed by a number of disadvantages.

Firstly, a number of manufacturing enterprises are involved in the creation of products. Subsequently, the inclusion of all these enterprises in the taxation scheme leads to the fact that the tax becomes a “pyramid”, and in order to minimize tax pressure, enterprises involved in the same production chain have an incentive to unite. The consequences of such a system are less efficient production and taxation.

Secondly, when using this tax collection system, its neutrality is not ensured, i.e. the tax burden is distributed unevenly. In particular, the share of tax in the price of identical goods can vary significantly depending on the number of enterprises involved in the production chain.

Wholesale tax is levied at the stage prior to retail sale. Compared to the producer tax, not only do the previously noted disadvantages remain, but the number of taxpayers also increases, which creates additional difficulties in administering the tax.

The retail turnover tax covers not only retailers, but also manufacturers and wholesalers, subject to the delivery of products to direct consumers. The tax base is the retail price, which eliminates discrimination between different distribution channels, but the circle of taxpayers expands sharply, which clutters and, accordingly, complicates the tax administration (collection) procedure.

Unlike single-stage collection, multi-stage collection covers several stages of the production and distribution process and can be divided into:

cumulative multi-stage collection;

non-cumulative multi-stage collection.

In a cumulative cascade system, tax is levied at all stages of production and distribution. The main disadvantages of such a system are:

significant cascading effect, i.e. The tax burden becomes greater the longer the distance to the consumer. Moreover, the scale of such a “pyramid” in comparison with single-stage collection systems is much larger, since the tax covers all stages of the movement of products from producer to consumer;

distortion of competition, since with a longer production or distribution chain the tax burden also increases.

As a result, such taxes are rightly considered to be the most ineffective and non-market, since they are levied without taking into account the results of economic activity, have an offset mechanism and therefore allow double taxation (on production costs). This reduces the economic effect of the social division of labor and specialization. Moreover, in order to minimize the tax burden, there is an interest in creating vertically integrated associations covering almost all stages of production, and this is a movement in the opposite direction from the social division of labor and specialization to “subsistence farming”.

It should be noted that these disadvantages become dominant when high tax rates are used.

Paradoxically, cumulative systems, with all their shortcomings, have become most widespread and have been preserved for a very long time and continue to be preserved in individual countries to this day as the main systems for collecting indirect taxes. Most likely, this is caused by one, but very important, advantage. It consists in providing relatively high income to the state budget at a fairly low tax rate. But when the tax rate goes beyond “low enough,” the tax becomes a drag on economic development and negates these benefits.

Non-cumulative multi-stage levies are represented by value added tax, which is an important source of budget revenue in most countries of the world. It should be noted that the use of this system makes it possible to realize not only the advantages of the cumulative system, but also to avoid almost all of its disadvantages.

The economic significance of this tax is explained by the fact that in countries with a developed market system, VAT helps to strengthen its balance. This is achieved due to the fact that, along with the fiscal one, it plays a regulatory and stimulating role.

The main advantage of VAT is that it is able to have a regulatory impact in curbing the crisis of overproduction and in accelerating the ousting of weak producers from the market. It acts as a demand limiter in the case of a high degree of market saturation, when the consumer responds to an increase in the price of a product by reducing consumption, and the producer responds to a decrease in price by expanding production.

VAT is an indirect multi-level tax, as it is included in the price of the product and is ultimately paid by the end consumer. The object is added value, the subjects are legal entities, regardless of industry affiliation or form of ownership.

The main advantages of VAT are:

the use of a single tax rate for all industries or several unified rates for individual industries, preferential rates for individual industries;

ensuring a real level of taxation for all industries and types of economic activity, including the service sector;

simplicity and reliability of the tax collection procedure for the payer and tax authorities;

a stable source of increasing state revenues;

the possibility of harmonization with taxation in neighboring countries.

VAT is also effective as a means of regulating foreign economic activity: to stimulate the growth of export potential, exporting firms are refunded the entire amount of tax paid at previous stages.

Among the negative aspects of VAT, it is necessary to highlight its regressive nature for the end consumer and the fact that its introduction involves the use of a new calculation of production costs. Moreover, its use leads to an increase in administrative costs due to the expansion of the circle of taxpayers.

The assessment of the place and role of VAT in the Belarusian economy is ambiguous. Practitioners believe that this tax provides the best possible way to meet budgetary needs, while analysts criticize it for being too fiscal, an undeveloped tax base and high rates.

In the Republic of Belarus, single-stage systems for collecting indirect taxes are also used. We are talking about taxes on the manufacturer (excise taxes) and on the retailer (sales taxes, taxes on certain types of services).

Advantages of indirect taxes:

1. Indirect taxes are characterized by ease of payment and regularity of receipts into the budget. Retention and control of the receipt of indirect taxes does not require expansion of the tax apparatus.
2. Since indirect taxes increase state revenues due to population growth or its welfare, they are more beneficial for countries that are progressing economically.
3. Taxes affect aggregate consumption by increasing the price of a particular product. In this case, the restraining influence of the state on the consumption of products harmful to the health of the nation and morality is especially important.
4. Direct taxes, from the point of view of the average person, are paid to the state for free, while the indirect tax is veiled in the price of the product, and even if the payer realizes that the price has been increased by the tax, he still receives the necessary product in return.
5. For the end consumer, indirect taxes are convenient because they are determined by the size of consumption, the convenience of payment in time, proximity to the place of payment, the absence of a compulsory nature, the absence of loss of time for payment, and do not require the accumulation of certain amounts.

The disadvantages of indirect taxes include the following:

1. In fact, tax payment is carried out by the head of the family, and is collected by all family members. Direct taxes tax the average tax capacity, while indirect taxes implement the principle of self-taxation, since with the help of indirect taxes the payer himself regulates individual tax capacity.
2. Since the right to levy indirect taxes is almost never contested, the object of political struggle, as a rule, is income tax or profit tax.
3. Indirect taxes fall on individuals disproportionately to their capital or income, unduly burdening the low-wage segments of the population.
4. Indirect taxes in conditions of developed market relations limit the amount of profit of a business, since in a competitive environment it is not always possible to increase prices by the amount of indirect taxes, especially in cases where the rates of these taxes are increased.

A direct tax is usually called one that is directly paid by the person whom the state intends to impose.

Direct taxes are taxes that include mandatory payments, the source of payment of which is profit (income). The list of direct taxes includes tax on profits and income, income tax, real estate tax, single tax on individual entrepreneurs and other individuals, tax on the gambling business, local taxes calculated from profits.

Finding the optimal combination of direct and indirect taxation is one of the main strategic problems in tax policy. It is known that in countries with developed market economies, the tax system gravitates towards direct taxes, which directly implement not only the fiscal, but also the distribution function of taxation.

Historically, direct taxes appeared before indirect taxes. Direct taxation is the simplest and most ancient form of tax collection. The original types of direct taxes were: tithe, poll tax or poll tax.

It should be noted that direct taxes can historically be divided into three main types. The object of the first type of taxes is real capital, while certain types of income are subject to taxation (land tax, property tax, inheritance and gift tax). The object of the second type of taxes is the independent manifestation of personal capital, such as personal earnings, housing, profession (income tax, property tax, dividends). The object of taxes of the third type is the total activity of material, monetary and personal capital in production (income tax, tax on fishing). As we can see, direct taxes are based on either personality or income, regardless of sources, or property, regardless of income.

Supporters of direct taxation consider it the most progressive form, since, firstly, the income and general financial position of the payer, his property are taken into account, and secondly, there are certain difficulties in shifting direct taxes to other persons or in evading their payment.

Currently, direct taxes form the basis of tax systems in developed countries, as they have a number of advantages compared to other types of taxes. The main advantages of direct taxation are as follows:

1. Economic - direct taxes make it possible to establish a direct relationship between the payer’s income and his payments to the budget.
2. Regulatory - direct taxation is an important financial lever for regulating economic processes (investment, capital accumulation, aggregate consumption, business activity, etc.).
3. Social - direct taxes contribute to the distribution of the tax burden in such a way that those members of society with higher incomes have greater tax expenses. This taxation principle is considered the most fair.

However, the disadvantages of direct taxes should also be noted:

1. Organizational - a direct form of taxation requires a complex mechanism for collecting taxes, as it is associated with a rather complex method of accounting and reporting.
2. Control - control of the receipt of direct taxes requires a significant expansion of the tax apparatus and the development of modern methods of accounting and control of payers.
3. Police - direct taxes are associated with the possibility of tax evasion due to imperfect financial control and the presence of trade secrets.
4. Budgetary - direct taxation requires a certain development of market relations, since only in real market conditions can a real market price and, consequently, real income (profit) be formed, but losses can also occur with the same probability. Therefore, direct taxes cannot be a stable source of budget revenue.

In addition to indirect taxes, a significant contribution to the formation of budget revenues is made by direct taxes and fees, the list of which includes profit and income tax, income tax, real estate tax, a single tax on individual entrepreneurs and other individuals, and local taxes calculated from profits.

In 2015 and for the last 14 years, Russia has had a unified tax collection system. A rate of 13% applies, and it is equal for citizens with any income level. Most countries today use progressive (sometimes even extreme) taxation, establishing gradations of income levels and levying personal income tax accordingly.

The essence of progressive taxation

Taxation of citizens' income with income tax is applied in all developed countries. However, in the vast minority of cases the tax rate is fixed. More often, a progressive income tax is used - it is collected at a rate, the size of which directly depends on the amount of income.

Currently, Russia uses a flat (unified) tax scale. A fixed rate of 13% for residents of the country is used regardless of the amount of profit, the sources of its receipt and the status of the payer.

A unified scale today exists in Estonia, Ukraine, Georgia, Bulgaria, Hong Kong, Mongolia, Lithuania and other countries. A progressive income tax rate is used in many European countries. France is a case in point: it has extreme progressive taxation.

For citizens' income up to 6,000 euros (very low level), no tax is levied at all. The highest rate of 45% applies to income at the level of 150 thousand - 1 million euros. Since 2013, a 75 percent tax rate has been imposed on the income of millionaires with an income level above 1 million per year. Instead of covering the budget deficit as planned, this government step led to an outflow of capital from the country.

In the UK, the rate ranges from 14-45%. The highest rates for maximum profit are in Sweden (56.6%), Israel (57%), the Netherlands (52%) and France. At the same time, developed countries can boast of low rates for low incomes - USA - 10%, China - 5%.

Advantages and disadvantages

A flat tax scale has been in effect in the Russian Federation since 2001 with a rate of 13%. The increased 35 percent rate applies exclusively to non-residents. And yet, over the past decades, the question of introducing a progressive income tax rate in the Russian Federation has regularly arisen.

It is assumed that almost everyone will benefit from such an innovation:

First of all, the budget will be filled and at least most of its deficit will be covered. However, the experience of France suggests that not everything is so simple.
Stabilization of regional budgets. Many taxes and fees that were previously transferred in whole or in part to the local treasury have in recent years begun to flow in full to the state budget (for example, the mineral extraction tax). There is a trend toward a lack of money “locally,” which could be solved by increased tax revenues.
Establishing social justice. In just two years - 2005-2007 - the number of Russian millionaires has tripled. And in the crisis year of 2008, the number of ruble billionaires more than doubled. The single personal income tax rate naturally causes dissatisfaction, since taxpayers transfer the same 13% from an income of 20 thousand rubles and 2 million rubles in the general manner.

But there are also disadvantages to the possible introduction of a progressive scale:

enrichment of local budgets of the capital and large cities and impoverishment of remote regions - taxation is carried out at the place of employment, not residence;
the need for citizens to independently report their income with all administrative costs;
tax evasion, return to gray salaries and shadow business;
increased unemployment, lack of incentives to work, decreased investment.

Is it possible to introduce a progressive scale in Russia?

This year, State Duma deputies introduced a proposal to introduce a progressive income tax in Russia. The following is offered:

establishing the previous rate of 13% for income not exceeding 24 million rubles for 12 months;
for incomes exceeding this mark, it is proposed to use a rate of 25%;
if you “earn” 100-200 million a year, the rate will be 35%;
if income exceeded 200 million rubles, the rate will be equal to 50%, that is, half of the citizen’s total profit.

Disputes about the fairness and expediency of the planned innovations continue. It is assumed that the use of such a progressive system will allow the profits of large organizations and enterprises to be directed to their own development and modernization, and not to the personal enrichment of actual leaders.

However, there are also pessimistic forecasts. For example, the wealthiest citizens of the Russian Federation, who, like all other taxpayers, pay taxes at their place of work, can simply register companies in another jurisdiction, where taxation will not force them to “halve” their profits.

Whether progressive taxation is necessary or not in Russia is a controversial issue. Even now, at the stage of discussion of the bill, it is necessary to clearly predict the consequences and build a transition plan if such a system is nevertheless introduced. The positive aspects are obvious - smoothing out the social disproportion in the incomes of the richest and poorest Russians. But there are also many disadvantages: income going into the shadows or abroad, the resumption of wage payments “in envelopes”.

The widespread use of indirect taxes in all capitalist countries was primarily due to the fiscal benefits of consumption taxes. Russian financier M.I. Sobolev in his work “Essays on Financial Science” (1925) noted three fiscal advantages of indirect taxes:

1) indirect taxes are very profitable, since they fall on consumer goods;
2) indirect taxes are usually included in the price of the product and, transferred to the buyer, are paid unnoticed by the consumer;
3) indirect taxes, being included in the price of goods, cannot be accompanied by arrears, as happens with direct taxes.

At the same time, researchers have noted a number of serious disadvantages of indirect taxation:

1) indirect taxes are not consistent with the most important principles of taxation. N.I. Turgenev in his book “An Experience in the Theory of Taxes” noted that indirect taxes do not correspond to the first principle of A. Smith (fairness), since they are in no way consistent with the income of the payer. Subsequent scientists also noted their regressive nature, i.e. inversely proportional to the solvency of consumers. N.I. Turgenev also believed that they do not correspond to the principle of convenience, because the person paying cannot postpone the consumption of salt or bread;
2) indirect taxes require high collection costs. This was noted by N.I. Turgenev and subsequent researchers. This is explained by the need to maintain a large number of personnel controlling the production of excisable goods, trade, movement of goods across the customs border, etc. For example, in France in 1828, the cost of collecting direct taxes was about 6% of revenue received, while for indirect taxes the cost on average was about 12%. It should be noted that the formation of a system of tax inspectors in developed countries has made it possible to significantly reduce the cost of collecting taxes. In the same France in 1900, the cost of collecting direct taxes decreased to 2.9% (i.e., twice), and for indirect taxes the decrease occurred almost three times - to 4%;
3) the collection of indirect taxes is contrary to the interests of entrepreneurs, since the financial department, in order to ensure the collection of taxes, is forced to intervene in the process of production and exchange, introducing various restrictions, sometimes affecting production technology;
4) consumption is not constant and may depend on various reasons. This makes indirect tax revenue more difficult to predict.

Assessing all the advantages and disadvantages of indirect taxation, specialists at the beginning of the 20th century. concluded that “indirect taxes cannot be classified as forms that, if dominant in the financial system, would meet the basic requirements of rational taxes.”

Advantages of direct taxation have been analyzed by many researchers. Let us present the arguments in favor of direct taxes, set out by the Russian economist I. Kh. Ozerov in his book “Fundamentals of Financial Science”. So, the advantages of direct taxes:

1) direct taxes are a more solid and permanent source of income, since they are based on an assessment of income, which under normal conditions (except for crises, wars, etc.) grows;
2) revenues from direct taxes are predicted with greater accuracy and the likelihood of their receipt, since direct taxes “fall only on those persons who can pay, and in the amount to which they can bear it”;
3) direct taxes do not require such collection costs as indirect ones.

The advantages of direct taxation were formulated in a generalized form by the Russian economist M. N. Friedman in “Lecture Notes on the Science of Finance” (1910): “As a general rule, direct taxes provide more accurate and definite income, more commensurate with the solvency of the population, and more accurately and clearly define the tax obligation of each payer than indirect taxes. "Finally, direct revenues deal only with the personal income of the payer and are completely passive in the production of national wealth. The history of finance shows that they regularly act during economic crises, even allowing rates to rise at such moments (France in 1848)" .

As financial science developed, it moved away from a simple discussion of the advantages or disadvantages of certain forms of taxation and moved on to the question of the scientific construction of the tax system. By examining the advantages and disadvantages of each form of taxation, science has come to the conclusion that only through a combination of direct and indirect taxation can it be possible to build a tax system that meets the fiscal interests of the state and the economic interests of taxpayers.

S. Yu. Witte, in his lectures to Grand Duke Mikhail Alexandrovich, formulated this conclusion in this way: “Only by a combination of direct and indirect taxes can a more or less satisfactory taxation system be created, which can, without particularly burdening the taxpayer, without undermining the well-being of the mass of the population and without hindering the economic state of the country, to provide the state with sufficient funds to cover its needs."

For a state with a developed economic structure, indirect taxes compared to direct taxes have their advantages due to an increase in the well-being of the population and an increase in their purchasing power.

The regularity and speed of indirect tax receipts directly depend on purchasing power. These taxes are convenient for the consumer because they do not require certain savings and are determined precisely by the amount of consumption of the final product in the absence of forced collection (if you want to buy a product, pay, if you don’t want to pay tax, don’t buy the product). In addition, collection and control over the receipt of this type of tax does not require expanding the staff of the tax service.

Disadvantages of indirect taxes

With all the advantages of indirect taxes, there are also disadvantages. The most serious drawback is the implementation of the tax on the principle of self-taxation. The payer independently regulates individual tax capacity. The indirect tax is divided into each buyer disproportionately to his income, as a result of which the increase in rates on these taxes becomes unaffordable for the socially unprotected low-income population.

Indirect taxes have a fiscal focus. In addition, there is a need to maintain a large number of personnel to monitor the goods that enter the market segment and their correct taxation. Customs duties require the maintenance of a huge customs service apparatus to prevent the import of smuggled goods into the country, and as a result, understatement of the amount of indirect taxes.

Collection of indirect taxes goes against the interests of entrepreneurs and limits profits, because it is not always possible to increase the selling price in proportion to the increase in the indirect tax rate.

In order to successfully collect indirect taxes, regulatory government bodies constrain manufacturers with mandatory rules for the production and sale of manufactured products.

Taking into account all the pros and cons of collecting indirect taxes, we can summarize that indirect taxes cannot lead the tax system of the state, since they do not meet the basic optimal requirements of taxation. Only a rational combination of collection of indirect and direct taxes can create a tax system that will meet the fiscal interests of the country and the economic benefits of taxpayers.