Russia - World Bank

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17. Land and Property Taxes in Russia1
Federal legislation2 prescribes a closed list of taxes that can be levied in the Russian Federation.
This list is comprised of three groups: federal taxes, regional taxes, and local taxes. The criteria
to classify a tax as belonging to a particular level of government are a) the territory covered by a
tax and b) the level of the government that introduces the tax. The criteria do not include the
level which ultimately receives the revenue or the level defining a tax base or rate. In some
instances, neither localities nor regions have any control over whether to adopt the tax or what its
rate or base will be. This is the case with the land tax. Being classified as a local tax, it is split
between all the three levels of budgets in proportions set by the federal government. The tax rate
is set by local governments within a narrow range established by the federal and regional
governments. When introducing taxes allowed to them, regional and local governments must fit
tax bases to the federal law, and may levy rates only within federal limits. Certain taxes
introduced by one level of government are shared on a derivation basis with another level of
government. Revenue from some taxes are split between levels of government in proportions
fixed in the federal legislation while for other taxes the sharing rate is adjusted annually (such
tax revenue is called “regulated”).
Besides the Land Tax, the list of authorized taxes contains three other items related to property:
Individual Property Tax, Enterprise Property Tax, and Succession and Gift Tax. The Individual
Property Tax is classified as local, the Enterprise Property Tax is classified as regional, and the
Succession and Gift Tax is classified as a federal tax. However, fifty percent of revenue from the
Enterprise Property Tax is to be allocated to the local government at the point of collection. Until
January 2001 all revenue from the Succession and Gift Tax was allocated to the local budget3 at
the point of collection. In all localities, tax payments to all levels of government are collected by
a local branch of the federal tax service (tax inspectorate). Proceeds from taxes assigned
exclusively to localities and regions are then transferred to an appropriate budget while exclusive
federal and shared tax revenue is transferred to a local branch of the federal treasury. It is the
local treasury office that splits the shared tax revenue between the budgets of the different levels
of government according to legislated sharing rates.
Since January 1999, the federal parliament has been enacting separate parts of the draft Tax
Code. As of January 2002, besides the general part of the Code dealing with tax administration
issues and taxpayer rights and obligations, only those parts that develop federal taxes and the
regional Sales Tax are in force. The parts of the Code that develop the structure of other regional
and local taxes have yet to be discussed and approved by the federal parliament. Chapter 40 of
the draft Tax Code provides for the introduction of a western-style real estate property tax at the
regional level, which is to be shared with local governments. According to the draft Code, as
soon as representative branches of regional governments put into effect the Real Estate Tax, the
three existing property taxes (Land Tax, Individual Property Tax, and Enterprise Property Tax)
will cease to be levied in their jurisdictions.
1
Prepared by Andrey Timofeev, Georgia State University, Atlanta. [Note added by editors: For some general
background, particularly with respect to difficulties in establishing clear property rights in land in Russia, notably in
rural areas, see J.H. Malme and N. Kalinina, “Property Tax Developments in the Russian Federation,” in J.H.
Malme and J.M. Youngman, The Development of Property Taxation in Economies in Transition (Washington:
World Bank Institute, 2001), pp. 67-83.]
2
Articles 18-21 of the Federal Law On the Basic Principles of Taxation (No. 2118-1; December 27, 1991).
3
The City of Moscow and, until 1999, the City of St.-Petersburg had no local governments and thus all revenue
from the Succession and Gift Tax was allocated to the city budget. In addition, the Republic of Sakha’s budget in
1997 and the Orenburg and Penza Regions’ budgets in 1999 received minor portions of revenue from the
Succession and Gift Tax collected in their constituent localities.
1
Two pilot cities (Novgorod and Tver) have been working on the introduction of the Real Estate
Tax since 1997.4 The city of Novgorod created a municipal register of property specifically for
taxation purposes. For every property object the register contains data on its technical
characteristics, legal status, and holders of property rights. These data are used for mass appraisal
of the registered property objects. In Novgorod, the introduction of the Real Estate Tax is to be
made stage by stage. At the first stage the existing property taxes will be substituted with the
Real Estate Tax only for those legal entities that own land plots and improvements. At present,
for about 10 large enterprises, which own the land under their facilities, the two property taxes
are replaced by the Real Estate Tax. Although the property register covers all property objects,
the present system of revenue sharing reportedly discourages city officials from tapping this tax
base. The idea is that at later stages the experiment will cover legal entities that lease land plots.
The experiment in the city of Tver is falling behind the one in Novgorod. Both experiments are
to be completed by year 2003 and the results to be employed for developing the federal
legislation on this tax.
Payment for the use of land
In Russia, land use requires payment to the government. There are two forms of payment: the
Land Tax and the Land Lease Fee. The Land Lease Fee is paid by lessees of the state (federal
and regional) and municipal land. The amount and terms of payment are set separately in every
lease. For state and municipal lands, the corresponding legislatures set basic rates by type of use
and category of lessee. Land plots and shares of land plots in ownership, possession, or use of
legal entities and physical persons are subject to the Land Tax. Separate rates for agricultural and
non-agricultural land are applied to the area of land plots. Tax rates are doubled for land plots
not in use or used for purposes different from intended.
Tax rates on agricultural land vary by composition, quality, area, and location. The average
tax rate (in rubles per hectare of ploughed field) is set for each region in the Federal Law On
Payment for Land (N 1738-1, October 11, 1991). These rates are indexed annually in the federal
budget law. Based on the average rate, regional legislatures differentiate rates on ploughed fields
by type of soil, and set rates for plantations, hayfields, and pastures. Regional legislatures also
set the minimal rate for agricultural land. Tax liabilities are corrected for the location of land
plots. Plots of land in the territory of rural settlements provided to physical persons for uses
different from farming are taxed at a rate (per square meter) fixed in the Law On Payment for
Land. Local governments can increase this rate for advantageously located plots but no more
than by a factor of 2.5 Payment for land used for forest utilization is charged as part of the
forestry fee and equals to five percent of the total fee.
Tax rates on non-agricultural land. The Federal Law On Payment for Land sets the average
rate for each of the eleven economic zones of Russia and ten categories of sizes of urban
settlements. The law also prescribes adjustment coefficients for resort and recreational arrears,
and advanced cities (e.g., regional capitals). Based on the average rate resulting for a given urban
settlement, local governments set differentiated rates for particular urban zones depending on
their location, distance from the downtown, level of development, environment, and geological
characteristics. Local governments can set these rates as they wish, provided they generate the
same revenue as if the average rate (set in federal law) were applied to the total area. Total tax
liabilities generated by these differentiated rates should be equal to the average rate prescribed
4
Federal Law On Real Estate Tax Experiment in the Cities of Novgorod and Tver (110-FZ; July 20, 1997). [Note
added by editors: For a more detailed account of this experiment, see Malme and Kalinina, 2001, pp. 76-80.]
5
“Advantageously located plots” are as defined by the local government. This provision applies only to plots in
rural settlements provided to individuals for farming. It seems unlikely that any such differentiated rates have
actually been applied.
2
for this urban settlement times its total land area. The portion of land plots in excess of the
“standard claim” is taxed at a double rate.6
Plots under residential structures and personal subsidiary plots are taxed at a rate equal to three
percent of the rate set for a given urban zone. However, the Federal Law On Payment for Land
sets a minimal rate on plots under residential structures and this minimal rate is indexed annually
in the federal budget law. In year 2000, the minimal rate was equal to RUR 0.14 (USD 0.05) per
square meter. Personal gardening plots located within urban settlements are taxed at a rate set in
the Federal Law On Payment for Land and indexed annually in the federal budget law.
Agricultural land located within urban settlements is taxed at the double the rate set on
agricultural land in rural areas of the region.
Billing and collection. For physical persons, the tax inspectorate at the location of the plot sends
tax advice to the owner by August 1. Information on the area of plots comes from the State
Register of Land. Information on their ownership from the State Register of Property Rights.7
Legal entities make tax computations themselves and file tax returns by July 1. Both legal
entities and physical persons pay the tax in two equal installments by September 15 and
November 15. The payments are made to the local branch of the federal treasury, where it is then
allocated to the three budgets. Late payment is penalized by charging interest on the overdue
amount equal to 1/300 of the refinancing rate of the Central Bank for each day of delay.
Revenue allocation. Payments for land located within rural settlements are allocated to the
budget of the local government. Payments for land located within urban settlements are split
between the federal, regional, and local budgets in proportions set in the federal legislation. In
2000, the law on the federal budget decreed payments for urban lands to be shared in proportions
30:20:50 between the federal, regional, and local budgets. The federal government’s share of
payments for agricultural land is set annually in the law on the federal budget. The size of this
share is based on the need for centralized expenditures on organization of land use, maintenance
of cadastre, monitoring and protection of land, breaking new land, etc. The regional
government’s share of payments for agricultural land is set by the regional legislature but cannot
exceed ten percent. The remaining share is allocated to the local budget.
The Individual Property Tax
This tax, assigned to local governments, applies to structures (houses, apartments, cottages,
garages, etc) owned by physical persons as well as to motorboats, aircrafts, and other vehicles
except automobiles, motorcycles, and other self-propelled vehicles. For structures, the tax rate
applies to the sum of inventory values of all structures located in the jurisdiction and owned by
one individual. If tax rates vary by type of structure, the tax rate is applied to the total value of
all structures of one type and then liabilities are summed up over all types. The rates are set by
the local government but with low federal maxima, which vary by the total value of structures
(see Table 1). For vehicles, this tax is levied according to engine power.
6
The “standard claim” is the norm set out in the city development plan to guide the issuance of building permits and
the leasing of public land.
7
All property rights acquired after the enactment of the federal law On the State Registration of Property Rights and
Transactions (No. 122-FZ; July 21, 1997) are subject to state registration. State registration of property rights is
carried out by justice offices established by regional governments in accordance with the federal legislation and
under the supervision of the federal government. [Note added by editors: According to Malme and Kalinina, p. 68,
this registration process has been “…burdensome for new owners and costly for governments….As a result, much
property remains unregistered, including valuable new construction.”]
3
Table 1. Federal Limits for the Individual Property Tax Rates
Total Value of Property
Tax Rates
Below 300 thou. RUR (10 thou. USD)
up to 0.1 percent
from 300 thou. RUR to 500 thou. RUR
0.1 – 0.3 percent
over 500 thou. RUR (17 thou. USD)
0.3 – 2.0 percent
Source: Federal Law On Personal Income Tax (No. 2003-1; December 9, 1991) amended by
the Federal Law No. 178-FZ of July 17, 1999.
The inventory value of structures is determined by a local Bureau of Technical Inventory8 as the
cost of reconstruction depreciated for the deterioration of the structure. These bureaus are
obliged to send information on the value and ownership of all registered structures to a local tax
inspectorate by March 1. By August 1, tax inspectorates send tax advices to the owners. Payment
should be made in two equal installments by September 15 and November 15. Late payment
penalty is overdue amount times 1/300 of the refinancing rate of the Central Bank for each day
of delay.
The Enterprise Property Tax
This tax applies to the annual average balance sheet value of assets (fixed, intangible, and
inventories) of legal entities. Assets used for agricultural production are exempted from taxation.
Rates are set by regional legislatures and can vary by type of production that the assets are used
for. However, it is prohibited to set individual rates for single enterprises. The maximum rate is
set at 2 percent.9 The tax is essentially self-assessed: each quarter, legal entities make tax
computations and file tax returns along with accounting reports to the tax inspectorate at the
location of the legal entity itself and each of its detached subdivisions. Tax advances are paid
quarterly within five days after filing tax returns. The final payment is made within ten days after
filing the annual accounting report. Tax revenue is split equally between regional and local
governments. Since 1998, enterprises have been required to pay taxes on the property of their
detached subdivisions (not registered as separate enterprises and not maintaining separate
accounts) to the jurisdictions in which those subdivisions are located. It may, however, be
difficult to enforce this provision since neither the federal administration nor the enterprises have
any incentives to split tax payments in this way.
The Succession and Gift Tax
This tax is paid by physical persons who receive property as a gift or by right of succession.
Taxed objects include houses, apartments, cottages, garages, land plots, land shares,
automobiles, motor-cycles, motor boats, aircrafts, and other vehicles, as well as bank deposits
and securities. Structures are taxed according to the technical inventory value or insurance value.
Vehicles are taxed according to the insurance value. Other property is appraised by special
experts. The tax rate is set in the federal law, as this tax is classified as federal.10 The rate varies
by the degree of relationship and by the value of the gift or bequest. Bequests valued over RUR
85,000 (USD 2,900) are taxed from 5-15 percent for the first devisees, 10-30 percent for the
8
An authorized agent of the State Committee of the Russian Federation on Construction and Housing & Utilities
(Gosstroi)
9
A review of 1998 budgets for seventy-seven regions found that fifty-five levied the maximum 2 percent
rate. Other rates levied included: 1 percent (three regions), 1.2 percent (one region), 1.5 percent (two
regions), and 1.8 percent (one region). Fourteen other regions levied rates that were differentiated by type
of enterprise, with rates ranging from 0.05 to 2 percent.
10
The new Tax Code classifies the Succession and Gift Tax as local, but this provision is not yet in force.
4
second devisees, and 20-40 percent for other devisees. Gifts valued over RUR 8,000 (USD 270)
are taxed from 3-15 percent for gifts between parents and children, and from 10-40 percent in
other cases. Tax computations and billing are made by the tax inspectorate at the location of the
property. Russian residents are to pay the tax within 3 months after receiving the bill. Late
payment is penalized at the rate of 0.7 percent of the overdue amount for each day of delay. All
revenue is allocated to the local government.
Revenue and Arrears
The data in Table 1 show that, over 1997-2000, revenue from the property-related taxes ranged
from 11.3-18.4 percent of total local revenue including intergovernmental transfers. Until 1998
this share was steadily growing. However, after 1998 this share declined by over one third. There
are two reasons for this. First, because property taxes are an inelastic source of revenue, their
share in total revenue was growing during the years of economic decline until 1997 and
decreased during the economic growth starting in 1999. Secondly, the yield of the propertyrelated taxes depends on how the land tax rates and the balance value of assets are indexed
relative to the level of inflation. Table 3 reveals that the index of mandatory appraisal of assets
was above the inflation level in 1995, 1996, and 1998. Hence, the yield of the Enterprise
Property Tax was increasing during these years. However, in 1997 and 1999-2000 the index of
mandatory appraisal fell significantly below the inflation level and the share of revenue from the
Enterprise Property Tax almost halved. The inventory value of structures owned by physical
persons is indexed by local Bureaus of Technical Inventory according to indexes set by regional
governments. Structures owned by legal entities are taxed according to balance sheet value.
This value can be reappraised either through direct calculation of the cost of reconstruction or by
indexing the previous year’s value by the indexes reported in Table 3. In 1992-97, when
inflation was high, annual reappraisal was mandatory, using one of these procedures. Since
1998, while enterprises have the right to reappraise property once a year, it is not mandatory.
Table 2. Share of Local Revenue Accounted for Taxes on Land and Property
Revenue Source
1995
1996
1997
Property taxes
9.04% n. a.
13.90%
Individual property tax
n. a.
0.20%
0.25%
Enterprise property tax
n. a.
14.49% 13.62%
Succession and gift tax
n. a.
n. a.
0.03%
Land tax and land lease fee
n. a.
n. a.
3.20%
Agricultural land tax
n. a.
n. a.
0.44%
Non-agricultural land tax
n. a.
n. a.
2.01%
Agricultural land lease fee
n. a.
n. a.
0.05%
Non-agricultural land lease fee n. a.
n. a.
0.48%
Source: Calculated from Russian Ministry of Finance data
1998
1999
2000
14.59%
0.31%
14.24%
0.04%
3.78%
0.43%
2.24%
0.05%
1.06%
10.52%
0.28%
10.19%
0.04%
3.88%
0.32%
2.40%
0.05%
1.11%
8.09%
0.26%
7.79%
0.04%
3.24%
0.19%
2.03%
0.04%
0.99%
The major property tax – Enterprise Property Tax – generated about eight percent of the total
revenue of local government in 2000. This accounted for seventy percent of all revenue from the
property-related taxes. The second largest source of property-related revenue was the tax on nonagricultural land. In 2000 this tax generated about two percent of the total revenue of local
government or eighteen percent of revenue from the property-related taxes. Non-agricultural
land lease fees accounted for additional one percent of the total revenue of local government and
the yield from each of the remaining four sources did not exceed half a percent of the total.
Table 3. Annual Indexes
Index
1995
1996
1997
1998
1999
2000
5
GDP growth
GDP deflator
Land tax rate index
Balance sheet value of
assets index
0.959
2.8
1.5 – 2.0
0.966
1.4
1.5
1.009
1.1
2.0
0.951
1.1
1.0
1.032
1.6
2.0
1.054
1.41
1.2
2.8 - 3.9
1.67 - 1.80
1.03 - 1.08
0.96 – 1.23
1.3
1.2
There is only limited information on the extent of tax arrears for these taxes. At the beginning of
2000 the stock of overdue payables on the Land Tax was equal to sixty-nine percent of the
estimated annual flow of land tax payables (tax collections plus the flow of tax arrears). The
stock of rescheduled payables accounted for additional six percent of the annual flow of
payables. During year 2000 the stock of overdue payables increased by twenty percent of the
annual flow of payables. Data on other property taxes in arrears are not available after 1998,
when the federal Ministry of Taxation stopped reporting these figures. By the end of 1997 the
stock of overdue payables on the property taxes (Individual Property Tax, Enterprise Property
Tax, and Succession and Gift Tax) reached the level of thirty percent of the estimated annual
flow of the property tax payables. Tax compliance on these taxes was ninety-three percent in
1997 and eighty-five percent in 1996.11
The value of structures owned by individuals, as set by the Bureaus of Technical Inventory,
cannot be appealed. Some enterprise taxpayers tried to appeal the reappraisal indexes (Table 3)
issued by the State Committee of Statistics, but the courts ruled that taxpayers could do their own
object-by-object reappraisal based on the cost of reconstruction if they are not happy with the
average indexes. The mass appraisal procedure used in Novgorod allows for appeal but so far
there appear to have been no appeals. On the other hand, as noted above, at present these values
are only used for about ten (enterprise) taxpayers.
11
[Note added by editors: Malme and Youngman, 2001, p. 68 report a “collection ratio” of 60% for 1998, but this
appears to be the ratio of collections to budget estimates.]
6
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