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16 Jan, 2008 06:22

Tax change could hit educated Russians

Russia is looking at boosting company taxes to plug a fast-growing deficit in pension funds. The Unified Social Tax, which companies pay on salaries, is being targeted but critics would disadvantage companies and skilled workers.

Currently employers pay 26% on monthly wages under $US 950, 10% under $US 2,000, and 2% for wages above this sum.

But the government is now looking at imposing a flat rate of 26% on wages under $US 2,000 per month and no payment at all above this rate.

The proposal will, if implemented, affect all employees and companies but those most affected will be employees earning just under $US 2,000 per month.

“This will just translate into an additional tax burden, and the question is will the Russian companies allocate this burden on individuals or will they pay themselves. Companies can always reduce salaries in order to compensate,” explains Natalia Orlova, ALFA Bank Chief Economist.

Those against the proposal say it would help solve the pension funding problems for only a few years and would have an immediate and serious effect on companies employing skilled labour.

Russia's average wage for skilled labour is currently about $US 1,000-1,300 per month and critics say with the tax paid on them jumping up more then 2.5 times, companies will be tempted to shift to businesses requiring less educated workforce.