A Give-and-Take Policy
Over the last three years the tax burden on the Belarusian economy has fallen by 9.3 percentage points
Over the last three years the tax burden on the Belarusian economy has fallen by 9.3 percentage points
On 1 January 2012, the law “Concerning amendments and additions to the Tax Code of the Republic of Belarus” came into force. Mr. Poluyan, can you provide the details about the amendments? What are they aimed at?
All the amendments directly or indirectly pursue three major goals – to ease tax burden on economic entities, make tax calculation and payment faster, and streamline tax administration. I would like to note that all these goals have both quantitative and qualitative parameters. Qualitative parameters include hours, rates and millions and billions of rubles of additional budget revenues. Qualitative benefits include convenient and easy tax administration, transparent and simple tax system. The ultimate goal is to increase GDP and boost export, promote innovative and high-tech production, raise more foreign and domestic investments. We will be able to fulfill tax collection targets if the overall economic and tax liberalization policy is a success.
A lot has been done in 2012 to liberalize the domestic economy. On 1 January this year, we reduced the profit tax from 24% to 18% as well as the tax rates of the simplified tax system (STS), introduced a loss carryforward mechanism and simplified the procedure for applying for VAT tax deductions.
The fiscal function no longer dominates the domestic taxation system. At the same time, nobody questions the importance of taxation, as taxes are major sources of state budget revenue. However, tax control and sanctions have ceased to shape the tax policy of the state. The taxation system is increasingly employing stimulating and regulating mechanisms. It became clear that it is all about give and take. Legislative reforms create preconditions for realizing business initiatives, encouraging sound competition and enhancing the investment appeal of the country. Fewer people now perceive tax liabilities as a tax burden. At the same time, Belarus is looking for new reserves to optimize tax calculation and payment. The work continues this year, as well. Taxes and Duties Minister of Belarus Vladimir POLUYAN tells the Economy of Belarus Magazine about the present and future of the tax system of Belarus.
We added a new article to the Tax Code of the Republic of Belarus to introduce the commodity pricing principles to the work of tax watchdogs. Such principles will be used for taxpayers that apply the socalled transfer pricing.
We expanded the list of cases when amended tax declarations (income tax returns) should be submitted. This is required when, for example, taxable items were discovered during an inventory check.
We changed the application of penalties for late payment of taxes. The calculation of penalties for each day overdue is based on the refinancing rate that was in effect during the late payment period, not the day when the taxes were paid.
If a taxpayer was not entitled to a VAT refund he applied for, he will have to pay the amount of VAT with a penalty. While calculating the amount of penalties on taxes to be paid additionally after the submission of an amended tax declaration, we will take into consideration excess taxes and duties withheld during the last tax period.
Taxpayers will no longer need to present documents confirming their right to tax deductions to taxation authorities. These documents will be asked during checks.
We added a new provision to the Tax Code abolishing penalties for late payment of taxes (duties) in case late payment resulted from fulfilling written instructions of tax agencies. The administration of individual taxes has been changed, too. Tell us about the key tax reforms affecting the majority of economic entities.
We abolished VAT on disposal of goods, fixed assets, intangible assets and unfinished construction facilities.
We also lifted restrictions from the deductions for VAT paid for purchased fixed assets provided turnover is exempt from taxes or has a tax credit as well as the VAT paid for purchased assets out of the funds disposed as a result of using tax exemption. In both cases, before 2012 the taxes were applied to the increase of the cost of fixed assets.
As I have already said, we have reduced the profit tax rate to 18%. We abolished profit tax deductions previously applied for financing capital investments and housing construction. We simultaneously introduced the right to use accelerated depreciation in tax administration. We also allow changing
the chosen method of current profit tax payment within one tax period. A taxpayer will no longer need to notify tax services in writing about the amount of the due profit tax on dividends.
The deadline for submitting a real estate tax declaration was shifted from 20 January to 20 March, while the deadline for paying the tax – from the first month of each quarter of the year to the third month. In case local Councils of Deputies change real estate tax coefficients within a year, the changes will come into force on 1 January next year. Thus, taxpayers will no longer need to correct their tax declarations within a financial year. The same rule applies to the land tax.
With a view to reducing the number of above-level facilities under construction and engaging idle (inefficiently used) property into economic use, we have introduced a 2% real estate tax for these facilities and Multiplier 2 for land plots where these idle or unfinished facilities are located.
Environmental tax declarations will be submitted to tax agencies located in the precinct where a taxpayer is registered, instead of the precinct where the taxable facilities are located.
Can you please update us on the recent changes? What is to be done to ease the tax burden on SMES?
On 1 January 2012, a series of important tax regulations came into force aiming to create a favorable business environment for medium-sized and small enterprises (SMES).
We have reduced taxes for the simplified tax system (STS) from 8% to 7% for those who pay STS without VAT and from 6% to 5% for those who pay STS with VAT. Companies and self-employed businessmen producing goods (works, services) for export will be entitled to a 2% tax rate if they use STS.
We increased the amount of gross revenues entitled to STS. The amount of annual gross revenues for economic entities opting for STS with VAT makes Br12 billion, that for taxpayers opting for STS without VAT and (or) using gross income as a tax base makes Br3.4 billion.
In addition, we ensured the transition from permit-based STS to application-based one, extended the deadline for sending STS transition notifications from 30 November till 31 December. Of course, we keep working on the STS optimization. We will continue polishing the system this year taking into account the efficiency of the innovations we implemented earlier.
Are there any novel concepts in the taxation of selfemployed businessmen?
For single tax payers we have abolished the requirement for separate accounting and taxation of the income derived from retail sale of goods. Starting from 2012 these operations will be subject to the single tax.
We removed the cap on the size of trade and total areas of retail
facilities used for manufacture, processing and storage of goods. The payment of the single tax will not depend on the area of such facilities.
In order to make activities of self-employed businessmen more transparent in 2012 we modified the principles of using Multiplier 2 to the single tax rate in retail. This modifier will now be applied to the sale of goods in case the payer has no documents confirming their purchase.
For the self-employed who use the general taxation system, we canceled the list of expenditures that are taken into account while calculating income tax as part of the professional tax deduction, which will make it possible to take into account any costs related to running a business. In addition, income tax payers have the right not to submit tax declarations (income tax returns) in case of the absence of any income during the quarter of the year or if their earnings are exempt from income tax fully or within the limits established by the law.
Has the tax burden on individuals who pay income tax and other types of payments decreased?
Yes, this burden has decreased and, in my opinion, big time. Starting from 1 January, we canceled income tax with regards to profits of citizens in need of medical assistance, including surgeries, without restrictions on the amount, received from Belarusian organizations and citizens in the form of grants. Such profits are exempt from income tax provided there is a relevant confirmation from the Healthcare Ministry of the Republic of Belarus. I would like to note that earlier there were some restrictions on the nontaxable amount, namely 1,000 basic amounts per year or Br35 million.
In addition, we introduced a new privilege: income tax is not levied on profits under Br1,750,000 in the form of vouchers to sanatoria and health resorts acquired for children by Belarusian organizations or selfemployed businessmen.
Starting from 2012, parents with two or more minor children will have the right to get a standard tax deduction for children at a higher rate – Br246,000 per month. Earlier this right was enjoyed by parents of three or more children.
Mr Poluyan, how tax changes affect the tax burden on the economy as a whole?
Over the past three years, the tax burden on the economy has decreased from 36.1% to 26.8%. A significant reduction in the tax burden (9.3%) was due to a number of decisions in the tax policy.
Amendments and additions to the Tax Code include the expansion of tax privileges for producers of innovative and high-tech goods. Will you tell us more about it?
Indeed, on 1 January 2012, income tax is no longer levied on profits of organizations received from the sale of their own goods which can be considered innovative in accordance with the list compiled by the Council of Ministers of the Republic of Belarus.
Profits organizations receive from the sale of their own goods, which are high-tech in compliance with the list and which are also defined by the Government, in agreement with the President of the Republic of Belarus, shall also be exempt from profit tax if the share of the proceeds received from the sale of such goods is more than 50% of the total amount of proceeds received from the sale of goods (works, services), property rights, including revenues from property lease (finance lease). If the criteria that I just mentioned are not met, the organization has the right to tax the profit from the sale of their own goods listed as high-tech products at a rate of 10%.
Requirements for the use of these privileges are minimal: availability of the product certificate issued in accordance with the established procedure, and a separate accounting of goods of own manufacture produced during the period of validity of this certificate.
This year, Belarus, Russia and Kazakhstan have started working in the Single Economic Space. To what degree has the tax legislation been harmonized in the Customs Union? Have tax aspects regarding economic entities been fully settled in the SES?
The Single Economic Space (SES) of Belarus, Kazakhstan and Russia became operational on 1 January 2012. This is the new economic association of the three countries, which are home to over 165 million people. In terms of economy, the SES boasts the aggregate GDP of $2 trillion, about 5 million corporate tax payers and more than 5 million self-employed businessmen working in the single customs space with no tariff and non-tariff barriers in mutual trade and customs controls at the internal borders.
The SES was conceived as an integration project to create the most favorable conditions for the development of manufacturing cooperation, mutual trade, and forward-looking business initiatives. Tax administration compliant with the objectives is becoming an essential part of the integration.
In circumstances where there is no control on the movement of goods from Brest to Vladivostok we had to devise new solutions and principles of work: implement new schemes of control, which would not hurt taxpayers, and at the same time allow maintaining the level of budget revenue at the previous level, prevent application of different rates of indirect taxes on goods imported and produced in the territory of each member state of the Customs Union. In fact, we are talking about the development of the uniform legislation governing indirect taxes in mutual trade, intelligible to business, effective for fiscal bodies, and above of all – lasting and binding for Belarus,
Kazakhstan and Russia, regardless of the national legislation.
It is for that logic that we have developed the agreement on principles of levying indirect taxes in the Customs Union and adopted the protocols to it. These instruments allowed charging VAT and excise duties in the absence of customs clearance in the single customs territory since 1 July 2010.
In general, it should be noted that the procedure devised by the tax authorities of the three countries regarding the levying of indirect taxes in the Customs Union facilitates the work of taxpayers in the Single Economic Space. Statistics is best evidence to it: in 2011, trade among the member states of the Customs Union increased as against 2010.
Can you explain this on the example of some particular tax?
As we are talking about indirect taxes, let it be VAT and excises. The level and order of their collection, had they remained supervised by national legislation of the SES member states, might have promptly influenced the trade flow between the states. Therefore, uniform rules in calculation and payment of indirect taxes in mutual trade would be the main way for the three countries to develop cooperation in the tax system.
Let us take a closer look at VAT, a tax on domestic consumption. Thanks to a territorial principle of VAT we avoid tax distortions in international trade, level out consumer or producer prices. Thus, in line with the uniform rules defined by the Customs Union international agreements, each member state sets national VAT rates on import. Exporters are granted zero VAT rate with full tax rebates. As a result, every Customs Union member state guarantees equal competitive conditions for all categories of goods through application of VAT flat rates both on domestic and imported goods.
The same approach is applied in the EU where every member state has the right to introduce its VAT rate taking into account the economic development of the country.
Zero-rate VAT confirmation and payment system envisaged in the Customs Union international agreements with regard to indirect taxes requires a declaration on the import of goods. It is, in fact, a tax administration instrument which rules out unfair practices from taxpayers. The declaration stamped by the tax authority of the importing country confirms the import of goods as well as a zero-rate VAT for the exporter, and hence, the right for VAT reclaim. It is worth mentioning that the deadline for presenting the statement on zero-rate VAT was prolonged from 90 to 180 days on 1 July 2010.
But, keeping in mind a general trend for an increasing amount of e-documents sent by economic agents to tax bodies, taxpayers want us to allow them to receive documents from their business partners online, too. Tax bodies will have to address this issue. We have agreed to increase the frequency of the exchange of information between tax authorities of the three countries from one to three times a week.
I am convinced that such amendments will promote a better tax climate.
The Single Economic Space has an impact on other areas of taxation. In the SES taxpayers have a right to choose where to register their business. That is why we need efficient administrative measures in the tax system to enhance our competitive ability in the SES.
What useful practices can the Ministry of Taxes and Duties of Belarus borrow from Russia and Kazakhstan?
We take interest in the experience of Russia and Kazakhstan in providing online services. We are also interested in Russia’s cadastral evaluation of real property for the calculation of the property tax. The Russian and Kazakh legislation in subsurface resources management warrants careful study as well. But I can say with confidence that the Belarusian tax system has a lot to offer, too.
Do you mean that the Belarusian taxation system has certain features that might become a competitive advantage in the SES? What do you think might be of interest to businessmen from the SES partner countries?
Contrary to Russia and Kazakhstan, Belarus has the shortest list of taxes, and tax rates here are very much competitive. Our advantages include fewer tax declarations, compulsory administrative procedures for taxpayers, the absence of regulated costs used to calculate income tax and compulsory tax checks of VAT rebate claim validity in export operations. Unlike in Russia and Kazakhstan, taxpayers in Belarus are not obliged to run an additional tax accounting for profit tax or compile a purchase ledger to keep a record on VAT rebate.
We have set up quarterly advance payments on profit tax as well as the right to choose VAT payment deadline (monthly or quarterly), abolished advance payments on excises.
Tax returns on profit tax, VAT, and real estate tax that are subject to filing in 2012 have been considerably simplified. And I would like to add that tax declarations (on VAT, profit and real estate tax) filed by taxpayers in the Russian Federation and Kazakhstan are much more complicated than their Belarusian analogues.
Except for specific cases (mineral and gambling taxes), a taxpayer in the Republic of Belarus pays taxes at the place of registration, regardless the location of the taxable item, while in Russia corporate property taxes, land and water taxes are paid at the place of the location of the item of taxation.
Exporters filing e-declarations to tax authorities have been exempted from the necessity to present additional documents for zero-rate VAT and excise relief.
I believe that a lot of the abovementioned regulations will be of keen interest to our colleagues from Russia and Kazakhstan. For instance, not long ago Russian specialists inquired about our procedure of profit tax payment with the presentation of an annual declaration and quarterly payment and in the absence of significant inaccuracies in bookkeeping and tax accounting.
Last year, for the first time ever, international experts assessed reforms in the tax system as important steps to promote favorable business conditions. In the World Bank Doing Business 2012 report Belarus moved up 27 positions to 156th in Taxation. What measures have improved the country’s performance?
According to the WB Doing Business 2012 report, Belarus is ranked among the three top reformers and shows great progress in the Taxation ranking.
It is worth mentioning that the methods the World Bank uses are specific and the Doing Business 2012 report assesses the tax legislation of 2010. Thus, the figures described in the WB report the country achieved were due to a whole range of measures implemented in 2010. We streamlined our tax system to a standard list of taxes: VAT, excises, corporate profits tax, income tax, property tax (real estate and land), ecological tax, contributions to the social security fund.
The experts also praised the abolishment of turnover and local taxes. In the assessment they took into account the opportunity given to organizations to file VAT and profit tax returns and pay taxes on a quarterly basis; and new approach towards estimating expenditure in profit taxation, and exclusion from rate setting expenditure on advertising, information, consulting and marketing services, hospitality costs.
We have also lowered taxes on sales of shares, stakes in Belarusian organizations and payment of dividends on profit taxes from 24% to 12%, foreign corporate profits taxes – from 15% to 12%, and income taxes – from 15% to 12%.
Simplified tax administration and control allowed for reducing the amount of compulsory tax declarations and the number of administrative procedures conducted by tax authorities.
Yet, the 156th position is not the rating we are aiming for.
We believe that this assessment does not reflect the real state of the tax system in the country. In particular, the WB report points out that the Belarusian taxpayer spends 654 hours a year on tax administration (18 tax payments including 12 in obligatory insurance). The Ukrainian taxpayer spends 657 hours a year to make 135(!)
obligatory payments. Taxpayers in Russia spend 290 hours to make 9 payments while those in Kazakhstan – 188 hours (7)…
As for the higher position of the Republic of Belarus in the World Bank’s Doing Business ranking, we will focus on the improvement of the indicator “Time Required to Start a Business”. Therewith, special attention will be drawn to a broader application of the electronic declaration system, the development of the electronic services sector. Thus, in line with the Tax Code, in 2012 organizations with more than 50 employees have to file tax declarations in electronic form.
The Ministry of Taxes and Duties has put forward a proposal to introduce the Best Taxpayer status for organizations and self-employed businessmen. Was this initiative implemented?
This form of awarding taxpayers has been introduced. We hope that it will help create a better tax culture, improve the indicators of financial and economic activities of taxpayers, and stimulate honest taxpayers. The information about awarding the economic operator the Best Payer of Taxes and Duties status may be used for advertising purposes. The companies can also use this status when applying to government bodies and organizations and implementing public procurement contracts in Belarus.
Before the norm was included in the Tax Code, this form of awarding taxpayers had been approved by the Ministry of Taxes and Duties of Belarus. In line with the document, in April 2012 the best payers of taxes and duties will be chosen among organizations, small and medium-sized businesses, and selfemployed businessmen.
The ministry will, first of all, take into consideration whether taxes, duties, and other payments to the budget are made in time and in full. Moreover, the company should have no administrative and other penalties for the violation of tax legislation in the past three years.
The Ministry of Taxes and Duties will present letters of thanks and provide certain incentive discounts to the best payers of taxes and duties. For example, they will be able to subscribe to such periodicals as “The Taxes of Belarus” and “The Business Consultant” at a 50% discount, place advertisements in official papers of the ministry on discounted terms, and take part in seminars of the Information and Publishing Center for Taxes and Duties (IPCTD). It will be easier for such taxpayers to extend their registration as members of the IPCTD certifying center.
Today electronic technologies are widely used virtually in all areas of life. Does the tax service of Belarus make ample
use of them? Was electronic declaration introduced in Belarus in 2009 a success? What other hitech novelties will be available for taxpayers in the near future?
Over the three years following the introduction of the electronic declaration system, more than half of all economic operators of Belarus have started to use it. Electronic declaration systems are used more frequently.
Apart from filing electronic tax declarations, taxpayers can get electronic consultations, reconcile their payments with the budget, apply for tax refunds, switch to special taxation regimes, and get more information using the Personal Cabinet service.
There is a legal document allowing taxpayers to request an electronic statement of taxes, duties, and fines from tax bodies. This statement will be sent to the taxpayer within three working days following the submission of a hardcopy or an electronic application.
Since 2011 taxpayers have been able to submit a number of additional documents in electronic form. For instance, they can file electronic notifications on the liquidation or restructuring of the organization, suspension of entrepreneurial activities of selfemployed businessmen, apply for certificates. Organizations and self-employed businessmen may also inform tax bodies that they want to switch to the simplified tax system, file an application on the repayment of difference in tax deductions and value added tax. They can also ask tax bodies to refund excessive tax payments and inform about the changes of location or director. Taxpayers can also inform relevant agencies that they are willing to arrange a different date for inspections, open or close accounts abroad, file an application on the payment of a single tax for the manufacturers of agricultural products, etc.
Taxpayers can also file electronic requests and get electronic consultations which have the status of official documents.
Starting from 1 January 2012, taxpayers can file virtually all data in electronic form using Microsoft Excel. Thus, tax bodies no longer need hard copies of declarations on the manufacture and sale of alcoholic and tobacco products, CMR waybills, reports on the use of identification and excise marks, reports on the volume of production, import, sales and use of goods with identification marks. Taxpayers can be informed about their debts and overpays, get certificates which confirm the amount of tax withheld (for foreigners working in the Republic of Belarus), get information about the permanent stay of Belarusian tax residents on the territory of the Republic of Belarus to avoid double taxation.
The Information and Publishing Center for Taxes and Duties holds numerous events to promote the application of public key certificates. Thus, apart from the Ministry of Taxes and Duties, the digital signature of the center is used by Belgosstrakh (for accounting), the Justice Ministry (for electronic registration of economic operators), the Belarusian Universal Commodity Exchange (for the participation in electronic auctions to implement public procurement contracts).
The Publishing Center for Taxes and Duties and the National Statistics Committee have signed an agreement on filing electronic accounts for the year 2011 to the national statistics bodies in accordance with the forms of statistical accounting “Report on the Financial and Economic Operation of the Small Business” and “Report on the Financial and Economic Operation of the Micro-organization”. In the future we are planning to make a tutorial on the use electronic declaration systems, open centers to send land and real estate tax notifications to individuals and inform taxpayers about various matters.
The Ministry of Taxes and Duties operates a hotline to explain tax legislation matters to individuals. In summer a similar hotline will be opened for self-employed businessmen and organizations. We will also step up efforts to optimize the process of calculating real estate and land taxes for individuals.
Starting from 1 January 2012 VAT is no longer levied on incomplete construction projects
Reducing the tax burden on small and medium-sized business is one of the main conditions to create a favorable
Expansion of tax preferences for innovative and high-tech productions will promote an investment inflow and enhance the country’s export potential
Belarusian families with two and more children under 18 are now entitled to a higher tax rebate
Lifting restrictions on the size of retail space, which was
essential for the single tax, will benefit both retailers