Table An Analysis of Major Tax Revenues in 1994 1995 1996 1997 1998 1999 2000 2001 2,9% 1,9% -1,5% -0,1% -6,8% -1,3% 8,6% 5,1% 4,4% Table Major tax revenues of the RF budgetary system In % of GDP 1999 2000 2001 Profit tax 4,6 5,4 5,7 4,Personal income tax 2,5 2,4 2,8 3,Value Added Tax 8,8 6,2 7,1 6,Excises 2,2 2,3 2,7 2,Taxes on foreign trade 1,8 3,1 3,6 3,7,2 7,3 7,1 7,7* Payments to social extra-budgetary funds (single social tax) Including SST due to the federal budget 3,Total tax revenues (including revenues of targeted budgetary 32,1 35,6 35,2 35,funds formed at the expense of taxes and mandatory payments) * Estimate adjusted for actual SST revenues of the federal budget.
In 2002, the profit tax revenues declined by more than 25 per cent in comparison with the figures registered in 2001 (by 1.5 p.p. in terms of GDP), what may be explained by several factors. First, the approval of the new chapter of the Tax Code concerning the tax on profits of organizations resulted both in significant shifts in the structure and considerable in According to IET estimates.
RUSSIAN ECONOMY in trends and outlooks crease in amount of costs deductible from the tax base. Second, the application of so called “transitional” procedure for determination of the tax base (transition to the accrual basis accounting method) allowed the number of enterprises significantly reduce the tax base. Third, in 2002, there was registered a general decline in the balance of financial results of enterprises and organizations.
Profit tax revenues grew by almost 20 per cent in real terms in 2002. The positive dynamics of profit tax revenues related both to the gradual legalization of incomes of individuals (the main goal of the reform), and the general growth of the economy resulting in an increase in aggregate incomes.
VAT revenues somewhat declined in 2002 as compared with the figures registered in 2001 (by 0.2 p.p. in terms of GDP). At the same time, the collection of VAT made 95 per cent of the target. The major factors behind the failure to meet the budgetary target were considerable amount of VAT compensation to exporters (2 per cent of GDP); persisting tax privileges relating to medicines, medicinal products, and books; the amount of GDP was below the target; and there were enacted provisions of the Tax Code permitting to deduct VAT imposed on capital construction and commissioning of objects. Excise revenues have also declined in GDP terms – by 0.3 p.p.
In 2002, the revenues generated by taxes on foreign trade significantly decreased in comparison with the figures observed in 2001 (from 3.6 per cent to 3.0 per cent of GDP). At the same time, in real terms the decline made more than 15 per cent in comparison with the levels registered in the respective period of the preceding year. This development is primarily related to the introduction (since February 1, 2002) of the new procedure governing the calculation of oil duties based on the monitoring of world oil prices in November through December of 2001. Although the targets of the federal budget based on estimated amount of duty at US $ 21.7 per metric ton, the actual duties were at or below US $ 10 over the first six months of 2002. As a result, the export tax revenues were by 5 per cent below the target set by the budget. At the same time, due to a growth in imports the revenues generated by import duties increased by about 1.2 per cent of GDP in 2002.
Since January 1, 2002, a certain part of the single social tax has been entered in the federal budget to be further transferred to the budget of the Pension Fund for financing of the base component of the labor pension. Revenues of the federal budget generated by this tax exceeded targets by more than one fourth, what was related to, first, inflow of tax charged in December of 2001, and, second, repayment of respective tax indebtedness due to the federal budget in accordance with the law on the federal budget for year 2002.
Consolidated Budget: Expenditures The structure of expenditures of the consolidated budget did not change significantly in 2002. While the expenditures for law enforcement have somewhat increased (from 2.0 per cent of GDP in 2001 to 2.2 per cent of GDP in 2002), the expenditures for HPU and subsidizing of agriculture declined (from 2.5 per cent of GDP in 2001 to 2.3 per cent of GDP in and from 0.8 per cent of GDP in 2001 to 0.5 per cent of GDP in 2002 respectively). There may be also mentioned a slight decrease in expenditures for servicing of the public debt (from 2.7 per cent of GDP in 2001 to 2.2 per cent of GDP in 2002, exceptionally at the expense of the federal budget).
INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru At the same time, the expenditures for education and financial aid to other budgetary levels increased considerably (from 3.1 per cent of GDP in 2001 to 3.8 per cent of GDP in 2002 and from 2.5 per cent of GDP in 2001 to 2.9 per cent of GDP in 2002 respectively).
Table Expenditures of the federal budget, territorial budgets and the consolidated budget in 2001 and 202 (in % of GDP) 2001 Territo- Consoli- Territo- ConsoliFederal Federal rial dated rial budg- dated budget budget budgets budget ets budget State administration and local 0,50 0,80 1,20 0,51 0,85 1,government Judiciary 0,10 0,00 0,10 0,18 0,02 0,International activities 0,30 0,30 0,29 0,National defense 2,70 2,70 2,70 2,Law enforcement and state secu1,60 0,40 2,00 1,74 0,47 2,rity Basic research and promotion of scientific and technologic ad- 0,30 0,00 0,30 0,28 0,02 0,vance Industry, power engineering and 0,50 1,20 1,70 0,96 1,35 2,construction Agriculture and fisheries 0,30 0,50 0,80 0,25 0,29 0,Transportation, road maintenance, communications and in- 0,40 0,60 1,10 0,09 0,40 0,formation technology * Housing and public utilities 2,50 2,50 2,34 2,Education 0,60 2,50 3,10 0,75 3,04 3,Culture, arts and cinematography 0,10 0,30 0,40 0,09 0,39 0,Mass media 0,10 0,10 0,20 0,09 0,08 0,Health and physical fitness 0,30 1,80 2,10 0,29 2,09 2,Social policy 1,20 1,10 2,40 0,29 1,29 1,Transfers to PF at the expense of SST for financing of the base 3,10 3,component of pensions Government debt servicing 2,60 0,10 2,70 2,04 0,13 2,Financial aid to other levels of 2,50 0,00 Х 2,91 0,01 Х government Military reform 0,10 0,00 0,10 0,13 0,00 0,Road network 0,35 0,39 0,Targeted budgetary funds 0,20 1,40 1,60 0,14 1,42 1,TOTAL EXPENDITURE 14,70 14,30 26,30 18,69 15,32 31,In 2001, including expenditures for the road network.
Enlarged Government Budget Table 9 presents the budget of enlarged government. It shall be pointed out that in the process of formation of such aggregate data there inevitably arises the problem of consolidation, i.e. the necessity to avoid double accounting. Since certain data relating to the execution of extra-budgetary funds and budgets of RF subjects can not be interpreted unambiguously RUSSIAN ECONOMY in trends and outlooks (for instance, it is not clear if the summary statistics relating to territorial and road and ecological funds include information of the funds consolidated in the budgets of RF subjects) and final data on the execution of the budgets of extra-budgetary funds are unavailable, revenues and expenditures of the enlarged government budget may be somewhat distorted. However, it shall be pointed out that these discrepancies can not radically change the general picture.
Table Enlarged government budget in 2000 through 2002 (in % of GDP) Extra-budgetary Enlarged governFederal budget Territorial budgets funds ment budget Total revenues 15,5 14,1 10,7 38,Tax revenues 14,3 11,8 9,5 35,Total expenditures 14,1 13,7 9,1 34,Health and physical 0,2 1,8 0,9 2,fitness Social policy 0,9 0,8 5,6 6,Transport and roads 0,8 1,6*** 2,2 3,Extra-budgetary Enlarged governFederal budget Territorial budgets funds ment budget Total revenues 17,6 14,3 9,2 38,Tax revenues 16,2 10,9 8,2 35,Total expenditures 14,7 14,3 9,1 34,Health and physical 0,3 1,8 0,9 2,fitness Social policy 1,2 1,2 6,4 8,Transport and roads 0,7 1,7*** 1,2 2,Extra-budgetary Enlarged govern Federal budget Territorial budgets funds ment budget* Total revenues 20,1 14,9 8,4 36,Tax revenues 18,6** 11,4 7,3 34,Total expenditures 18,7 15,3 9,2 36,Health and physical fitness 0,3 2,1 1,0 3,Social policy 4,4 1,3 6,7 8,Transport and roads 0,6 1,5*** 0,8 1,* Estimate.
** Including SST.
*** Including expenditures of territorial road funds consolidated in the budgets of RF subjects.
The following conclusions may be derived basing on the available data:
INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru First, in 2002 tax revenues of the enlarged government budget, as well as total revenues declined in comparison with the figures registered over two preceding years (by about 2 p.p.
in terms of GDP as compared with 2000).
Second, the expenditures of the enlarged government budget increased somewhat (by 1.3 p.p. in terms of GDP as compared with the respective figures registered in 2000 and 2001). It shall be noted that in 2002 expenditures for social policy and healthcare grew by almost 2 p.p. and 0.3 p.p in terms of GDP in comparison with respective indicators of 2001.
On the whole, it shall be pointed out that the tax burden on the economy has been significantly lightened over the last three years. At the same time, the level of expenditures of the budgetary system increased, what resulted in an approximate balance between revenues and expenditures of the enlarged government budget. It is yet another argument that any further reduction of taxes shall be conditioned on the simultaneous curtailment of expenditure obligations.
Appendix 1. Forecasting Tax Revenues in Over 2002, there were carried out estimates of tax revenues using two types of models:
revenue estimation model (REM) and econometric univariate autorgressive integrated moving average (ARIMA) models. The method of obtaining predicted values basing on the REM model is to transform the data about revenues for the respective period of the preceding year taking into account the growth in GDP, inflation, changes in tax rates, and the general shifts in the amount of revenues occurred from the beginning of the year until the predicted period in comparison with the preceding year. Therefore, the predictive accuracy of both models significantly depends on the stability of time series dynamics, primarily, their seasonal and trend components. In this respect, ARIMA models turn out to be more sensitive to changes in dynamics, what by no means implies better predictive accuracy, since the input of new data governed by a changed process in the evaluated interval results in deterioration of characteristic of regression and therefore the quality of forecasts. Thus, the changes in the tax legislation enacted since 2002 resulted in a change of dynamics not only with regard to the profit tax, but also with regard to the aggregate tax revenues of both the consolidated and federal budget of the Russian Federation.
The accuracy of the forecasts of tax revenues for year 2002 was tested basing on the comparison between the predicted and actual values from May to November of 2002 inclusively. The use of the progressive total values of tax revenues since the beginning of the year for the comparative analysis makes it difficult to evaluate the quality of forecasts, since by the end-year the rate of the forecast error diminishes significantly. Proceeding from this consideration, the data on the tax revenues and respective forecasts are presented in nominal monthly terms. The key criterion of the accuracy of forecasts is the relative deviation of predicted values from the actual data.
RUSSIAN ECONOMY in trends and outlooks 100 Actual data REM forecast ARIMA forecast jan feb mar apr may jun jul aug sep oct nov dec jan feb 02 02 02 02 02 02 02 02 02 02 02 02 03 Fig. 20. Actual and predicted amounts of aggregate tax revenues of the RF consolidated budget (Rub. billion) The mean relative error of the forecast of aggregate tax revenues of the RF consolidated budget for seven months (May – November) made 11.6 per cent for REM model and 12.3 per cent for ARIMA model. The least accurate forecast was obtained in October of 2002, when the relative error for both types of models was above 30 per cent.
Actual data REM forecast ARIMA forecast jan feb mar apr may jun jul aug sep oct nov dec jan feb 02 02 02 02 02 02 02 02 02 02 02 02 03 Fig. 21. Actual and predicted amounts of aggregate tax revenues of the RF federal budget (Rub. billion) The mean relative error of the forecast of aggregate tax revenues of the RF federal budget for the period under observation made 10.3 per cent for REM model, while the relative accuracy of ARIMA model was at 12.2 per cent. On the whole, proceeding from the available INSTITUTE FOR THE ECONOMY IN TRNSITION http://www.iet.ru characteristics of forecasts in the interval from May to November of 2002, more accurate forecasts were obtained using REM model.
Actual data REM forecast ARIMA forecast jan feb mar apr may jun jul aug sep oct nov dec jan feb 02 02 02 02 02 02 02 02 02 02 02 02 03 Fig. 22. Actual and predicted amounts of aggregate profit tax revenues of the RF consolidated budget (Rub. billion) Actual data REM forecast ARIMA forecast jan feb mar apr may jun jul aug sep oct nov dec jan feb 02 02 02 02 02 02 02 02 02 02 02 02 03 Fig. 23. Actual and predicted amounts of aggregate profit tax revenues of the RF federal budget (Rub. billion) The mean relative error of the forecast of aggregate profit tax revenues of the RF consolidated budget made 50.5 per cent for REM model and 41.8 per cent for ARIMA model.
This significant error of the forecast resulted from the changes in dynamics of the seasonal component in 2002 as compared with the respective indicator observed over preceding years.
For instance, the peaks of inflow of profit tax revenues in May, August, and November, characteristic of 2001, shifted in 2002 and occurred in the first month of each quarter with the ex RUSSIAN ECONOMY in trends and outlooks ception of January. Similarly important factor behind the error of the forecast is the general decline in the amounts of profit tax revenues registered in 2002, which reversed previous positive dynamics.
The mean relative error of the forecast of aggregate profit tax revenues of the RF federal budget made 58 per cent for REM model and 30.5 per cent for ARIMA model.
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