Vladimir Putin’s speech:

Ladies and gentlemen, I am pleased to welcome the participants and guests of this conference who represent tax agencies from various countries and international organisations. We have had a chance to speak with many of them, and I would once again like to thank them for finding the time to come to Russia and for making it happen. And, of course, I would like to congratulate all Russian tax officials on their professional holiday, Tax Worker Day. Congratulations, and all the best!

The modern Russian tax system was developed from scratch. We are all aware of what the tax system was like during the Soviet era – a purely formal system that incorporated no elements of market operation at all. In the mid-1990s, there were dozens of federal, regional and local taxes in Russia. Finding one’s way even to a basic understanding was impossible. Since then, we have done a great deal to formulate and streamline legislation, and we have since adopted the Tax Code. The number of taxes has been cut to 13 and we also have four special tax regimes. Another positive example of this development is that ten years ago, we audited one in every ten taxpayers. Today, onsite tax inspections are only held for eight out of every 1,000 companies, which is one of the lowest figures in the world. On the whole, I believe we have created a sufficiently liberal and competitive tax system.

At the same time, it is clear that this system should be further improved. I’d like to draw attention to the following principles and priorities. First, tax inspections need to be as convenient and comfortable as possible for people and economic players. Second, we should strengthen the stimulating role of the tax system, primarily for the purpose of structural modernisation of the economy and the social sphere, and for supporting innovation. The fiscal burden should be distributed more fairly across various sectors of the economy. And third, we must ensure stable tax deductions at all levels of the budget system, from the federal down to the municipal level. Of course, this is not your task alone, and perhaps it is not even yours in the first place.

At this point the government itself and the State Duma should think this over. They should discuss this issue again and make sure that tax revenues are fairly distributed among all levels of the system. But your role in this should be substantial as well.

Finally, the fourth aim is to guarantee the predictability and stability of the tax system as a major condition for implementing long-term plans of national strategic development.

The government’s policy is to consistently increase our treasury’s revenues,  not only by increasing the overall tax burden on people and economic players, but also by improving the quality of tax administration, encouraging economic development and ensuring the necessary rate of economic growth, thereby expanding the tax base.

This logic is producing results. Better tax collection is a major result of systemic work in the tax sphere. We think that next year Russia’s consolidated budget will receive about… We have just spoken with the head of the tax service and he said that 7.7 trillion has already been collected and we expect this figure to increase to 9.8 trillion before the end of this year. Let me mention for comparison’s sake that this is seven times more than in 2000. Seven times! In 2000, the consolidated budget received 1.4 trillion roubles and in 2010 7.7 trillion. And this year we have already received 7.7 trillion!

The income tax is a striking example of effective tax solutions. Russia has one of the lowest income taxes in Europe and the rest of the world – 13%. We had many debates on this score and we continue them now. I think we did the right thing. First, we encouraged employers to pay official salaries, thereby better protecting the social rights of their employees. Let me add that in 2010 income tax revenues exceeded our entire budget in 2000.

I consider the practice of tax rebates to be a big achievement as well and we must continue it. I’m referring to the right of all citizens to recover part of their income taxes if they had to pay for housing, medical treatment or education.

These sums are not small – every year about 2.5-3 million people request tax rebates and the total payments reach about 50 billion roubles.

We have a package of tax preferences in the economy, including simplified taxation of small business. Today, the tax burden on it is about 10% on average. The decisions that will relieve all healthcare and educational institutions of  tax on profit entered in force the other day. This opens up broad opportunities for the flow of investment into these spheres and for launching projects based on public-private partnership.

We have settled such a sensitive issue as tax control on transfer pricing. The relevant amendments to the Tax Code will become valid on January 1, 2012. They will help reduce to a minimum the opportunities for unjustified reductions of the tax base and tax evasion. Moreover, tax revenues to the budget will be distributed more evenly – taxes will remain where companies pursue their main economic activities. Regional governors have spoken about this many times. We have proceeded from this basic principle – new instruments of controlling transfer pricing should not create difficulties for honest taxpayers. This is our systemic, common approach to taxation.

I’m pleased to say that in the opinion of taxpayers and business people, communication with tax bodies is becoming more convenient. The number of disputed tax calculations is also gradually decreasing. But let’s be frank – there are still numerous outstanding issues in this sphere. It is necessary to simplify the procedures for preparing and submitting tax declarations and rid people and companies of excessive paperwork, document flow and the need to have cumbersome accounting services.

According to the World Bank, it takes Russian taxpayers twice as long to prepare tax papers than in the OECD on average. Imagine, twice as long!

We must focus on the broad introduction of modern technology. We will allocate about 30 billion roubles for upgrading our tax service in the next three years.

Today, already almost 70% of legal entities submit their tax declarations online. By 2015, this figure is expected to reach 80%, meaning everyone who wishes to work with the tax service using electronic document flow will be able to do so. Citizens will also be able to make and track their payments online. This has been put into practice and is developing, and it has proved to be convenient and in demand.

You are well aware that due to errors in addresses, personal data and payment calculations, 33 million Russian residents owe money involuntarily, with overall debts totalling 36 billion roubles. We have agreed to summarily write off debts that originated prior to January 1, 2009, with the corresponding amendments to the law entering into force starting from 2012. Note that taxation bodies are required to finalise the work on this during the first quarter of 2012. I ask all executives to take this issue under their personal control.

Furthermore, a taxation body executes not only fiscal functions. You play an important role in the work to establish a competitive business climate in the country. As such, you should develop a constructive dialogue with taxpayers and should handle the issues that arise in a considerate and thorough manner; you should help businesses and citizens have a good understanding off the intricacies and novelties concerning taxes, and not persecute them for minor errors. You need to correct them, to be sure, but you should assist rather than persecute people for these errors. This work should be based on respect for the rights of the conscientious taxpayer and the protection of their interests.

Naturally, you should work more closely with public organisations and the business community, and should consider their proposals on improving tax laws and introducing more convenient means of interaction. This is especially important now, as we are implementing large-scale integration projects, such as the Common Economic Space of Russia, Belarus and Kazakhstan, which will become operational starting on January 1, 2012. This essentially marks the beginning of the competition for taxpayers. We must be aware of this and create the most attractive tax procedures as possible, otherwise people will leave the Russian territory, just like certain companies that are changing their registration to Kazakhstan or Belarus. I will say it once more: Our taxation system and administration need to be competitive. We have to set the highest world-class standards here.

In conclusion, I would like to congratulate you once again and wish you success! Thank you very much for your work.