Imputed an Presumptive Taxes: International Experiences and Lessons for Russia

There are many ways to tax individuals and corporations. Taxes may be levied on consumption (such as the VAT, sales or excise taxes), flows of income (such as enterprise and individual income taxes), or wealth and assets (such as property taxes, assets taxes, and some income taxes). In fact, the tax systems of most countries are a combination of these different types of taxation. Developed tax systems tend to tax income according to relatively complex structures which utilize sophisticated accounting, record keeping, and tax administration in order to balance various goals of the tax system including equity and efficiency. Consumption taxation in more developed systems consists of excise taxes, value-added taxes and sales taxes, with varying degrees of complexity. In all countries, some enterprises and individuals remain outside of the tax system through use of different types of evasion or avoidance. In many cases, it is easier for individual taxpayers and small enterprises (versus large corporations) to remain outside of the tax net for the simple reason that they can remain inconspicuous to the tax administration. For these types of entities, complicated and administratively burdensome tax systems further discourage compliance with the tax laws. Tax administrations are often left with the choice of “going after” large firms where the potential tax revenue pay-back is higher or going after less lucrative smaller taxpayers. Additionally, complicated tax systems make it difficult and expensive for start-up firms (particularly small enterprises) to act in good faith in terms of tax compliance due to the costs associated with record keeping and the need for specialized information to comply with complex tax laws. At the same time, large and small taxpayers find it beneficial to take advantage of loopholes in the tax system in order to minimize their tax payments. These factors, tax avoidance, tax evasion, and the expense and difficulty for start up enterprises to comply with complex tax laws, have led many countries to adopt specific tax regimes to counter these problems. In many countries, imputed or presumptive taxation has traditionally been used as a way to get some tax revenue from these taxpayers which might otherwise go completely untaxed. These systems calculate the tax base via easy-to-obtain indicators or other methods, instead of relying on taxpayer self-assessment. This method of taxation can accomplish two things: it can reduce the cost of compliance by the taxpayer as the tax base is easier to calculate than that of the income or corporate tax, and, once the system is determined, it reduces the costs of tax administration. Once part of the simplified system, it theoretically becomes more difficult to “disappear” from the view of tax administrators by going to the shadow or underground economy. Imputed or presumptive taxation is therefore often regarded as a stepping stone to the regular tax system, such that a taxpayer would be subject to this simplified regime for a limited period of time and then become part of the regular tax system under which income can be taxed according to the country’s law regarding individual and corporate taxation.