Tax debt: problems, regional peculiarities and possible ways to reduce it (based on the materials of the Republic of Dagestan)

Imanshapieva Mazika Musabekovna PhD in Economics Associate Professor of the Department of Taxes and Taxation at Dagestan State University of National Economy 367014, Russia, g. Makhachkala, ul. Dachnaya, 95 Mazika21@rambler.ru Other publications by this author

The successful formation of the revenue side of the budget largely depends on the effectiveness of the tax system and, in particular, tax control. The importance of tax payments as the main source of state budget revenue generation (about 80%) determines the special role of tax control in the system of state financial control.

The most important task of tax authorities in the conditions of transformational transformations of the national economy is to control the timeliness of taxpayers' payment of taxes and fees to the budget system, prevent actions to violate tax legislation, implement measures aimed at removing tax arrears and reducing the level of taxes and fees owed.

The reliability and efficiency of the tax system are an essential guarantee for taxpayers, stimulating them to timely and complete fulfillment of their tax obligations.

As is known, failure by the taxpayer to fulfill the legally established obligation to pay taxes and fees within the established time limits leads to the occurrence of tax arrears, which the tax authorities have the right to collect in a compulsory undisputed manner at the expense of the taxpayer's funds or his property (Articles 31, 46, 47 of the Tax Code of the Russian Federation).

The Tax Code of the Russian Federation does not contain the concept of arrears of taxes and fees, however, a definition is given to the concept of arrears, which is the late payment by an entrepreneur to the budget system of the Russian Federation of legally established taxes, fees and insurance premiums.

At the same time, we note that arrears appear after the deadline for paying taxes and fees, and tax arrears initially arise at the time of tax accrual, even before the payment deadline.

Tax arrears may include both the tax itself and fines that are accrued by the tax authorities based on the results of control measures (tax audits), and penalties are accrued automatically from the moment the arrears arise. 

Thus, in the opinion of the author, the debt on taxes and fees is a financial indicator representing the amount of money for which an entrepreneur is obliged to make contributions to the budget system of the Russian Federation. 

Economic growth, the development of infrastructure and regions, the implementation of social programs and measures to support entrepreneurship depends on the effectiveness of the implementation of tax policy at the federal level, as well as at the level of the subjects of the Russian Federation.

The areas of increasing the collection of taxes and fees to the budget system of the Russian Federation include not only the identification of reserves for expanding the tax base for taxes and fees, but also improving the quality of tax administration, as well as the repayment of tax and fee arrears by taxpayers.

Many factors contribute to the formation of arrears in taxes and fees, but the main ones are the decrease in the solvency of taxpayers against the background of the general economic crisis in the country and the lack of practice of using an effective mechanism for collecting such debts.

The study of the causes of the formation of arrears of taxes and fees in budgets of various levels allows us to develop more effective methods to reduce the level of tax debt and identify areas for its reduction.

Classification of tax debts by sources of occurrence involves the allocation of the following four levels: the level of nanoeconomics; the level of macroeconomics; meso-level; macro-level ^[22].

At the level of nanoeconomics lies a low level of tax legal awareness.

 The macroeconomic level, in contrast to the level of nanoeconomics, assumes a high level of tax burden on bona fide taxpayers, while at the same time there are legitimate opportunities to reduce it, as well as low financial results of economic activity.

The peculiarities of the sectoral structure of territories, the uneven distribution of the tax burden by type of economic activity, as well as the development of the "shadow" economy belong to the meso-level.

The macro level includes high rates of economic growth, inflationary processes, the level of monetization of the economy, the volume of export-import operations.

The following reasons contribute to the increase in the level of tax arrears, namely, a high level of tax burden, the ongoing economic crisis in the country, insufficient efficiency of tax, judicial and law enforcement agencies, as well as a low level of tax discipline and tax culture of taxpayers.

Tax debt issues are faced in all countries of the world, nowhere can they completely eradicate tax debt, but in each state certain measures are taken to reduce it (voluntary and compulsory).

Even in states with a fairly high level of tax discipline, the issue of collecting arrears is quite acute. So, according to experts, in Germany taxes are paid entirely from only half of the total income, from another quarter – only 60-70% of the taxes due to it go to the budget, and taxes are not paid at all from the remaining part of the income.

In foreign countries, there are two main stages of tax debt collection: the application by tax authorities of measures to enforce the collection of debts on taxes and fees and direct foreclosure on the taxpayer's property.

Interim measures in foreign practice include the confiscation of funds, the write-off of funds from the company's bank accounts, the seizure of property or the establishment of a ban on the execution of transactions with it. In many countries, these coercive measures are extrajudicial and are applied by tax administrations.

In Switzerland, for taxpayers who evade their duties, tax administrations have the right to apply measures in the form of arrest or restrictions on leaving the country. A similar right has been granted to tax authorities in countries such as the United Kingdom, Canada, Denmark, Finland, and Japan.

In China, for non-payment of taxes on a large scale, criminal liability is provided with imprisonment and with the mandatory confiscation of property. The penalty for non-payment of taxes in the form of imprisonment is also in France ^[21].

The main purpose of the mechanism for the settlement of tax arrears is the repayment of arrears on taxes and fees, penalties and fines and the replenishment of tax payments not received in due time to the budget system.

The use of compulsory recovery measures, the use of offset of the identified overpayment, "suspension of transactions on taxpayer accounts in the bank", "sending a collection order of the tax authority to write off funds from the taxpayer's accounts", as well as "foreclosure from the debtor's property" are the most effective measures of tax authorities to reduce tax arrears ^[22]. Since 2021, a mechanism has been launched at the federal level in Russia for individuals to offset overpayment of tax payments on one tax against arrears on another tax.

The spread of a new coronavirus infection in Russia led to an economic crisis in the country and negatively affected the solvency of business entities as a result of a decrease in the purchasing power of the population. One of the negative consequences of the spread of covid-19 in the Russian Federation is not only a deterioration in the results of financial and economic activities of business entities, but also a decrease in the level of tax discipline of taxpayers, an increase in the amount of taxes and fees owed.

Table 1

Structure of arrears on taxes, fees, insurance premiums, penalties, sanctions and fines to the consolidated budget  Of the Russian Federation  

as of 01.01.2019 (million rubles)

Source: reporting data of tax authorities for 2018

The share of arrears in the total amount of arrears on taxes, fees, penalties and sanctions is 75.7% or 599,656 million rubles, and arrears on penalties and sanctions – 24.3% or 192,095 million rubles (Table1).

It should be noted that the implementation of control measures against taxpayers by the tax authorities does not always lead to the receipt of the entire amount of taxes and fees reflected in the decision to bring to responsibility for violations of tax legislation, if the organization does not have property and current assets for repayment at the time of control measures and after their completion the amounts of arrears formed by the results of the audit.

Table 2

Settled and non-recoverable debt on taxes, fees, insurance premiums, penalties, sanctions and fines to the consolidated budget of the Russian Federation as of 01.01.2019 (million rubles)

Source: reporting data of tax authorities for 2018

In order to avoid paying taxes or paying off tax debts, there is a frequent practice of purposeful decision-making by taxpayers on liquidation of a beneficial organization or filing an application for bankruptcy with the arbitration court, which leads to minimizing negative consequences based on the results of on-site and desk tax audits.

 The lack of powerful tools at the disposal of tax authorities that allow forming conclusions on the interdependence of organizations based on the results of control measures does not allow them to promptly recover tax liabilities in favor of the beneficial owners of a nominee organization who received financial benefits from the use of tax evasion schemes. These factors contribute to the motivation of taxpayers to split up the business and withdraw potentially toxic assets outside the group of companies that have property that can be foreclosed on and long-term obligations of commercial importance, which is reflected in the growth of tax debts impossible to recover in connection with the bankruptcy procedure.

Thus, in the total amount of settled and impossible to recover debts on taxes, penalties and penalties of the consolidated budget of the Russian Federation, the settled and impossible to recover debts of organizations, individual entrepreneurs in bankruptcy proceedings is 73.1% (including the debt of the specified category of taxpayers on taxes - 54.9%), and impossible to recover by tax authorities arrears of taxes, penalties and fines – 1.4% (including arrears of taxes - 0.97%).

Thus, the identification of areas to reduce the debt on taxes and fees of the consolidated budget of the Russian Federation is relevant.

In a number of regions, there is a systematic increase in arrears in taxes and fees. According to the tax authorities in recent years, the lowest level of tax arrears has been observed in such regions as: Chukotka and Nenets Autonomous Okrug, Sevastopol, Jewish Autonomous Okrug, Altai Republic, Kalmykia, etc.

The highest level of debt (above 70%) is observed in the following subjects of the Russian Federation: Moscow, Moscow Region, St. Petersburg, Krasnodar Krai, Samara and Sverdlovsk Regions, and among the subjects of the North Caucasus Federal District, Stavropol Krai, Kabardino-Balkarian Republic and the Republic of Dagestan dominate.

Tax discipline in the Republic of Dagestan continues to remain at a low level. It should be noted that in recent years in the Republic of Dagestan there has been an increase in the amount of tax arrears, with a predominance of arrears.

In the Republic of Dagestan, despite the fact that municipalities are implementing measures aimed at ensuring the timeliness and completeness of tax payments (targeted work with taxpayers who have debts to the budget and its repayment (according to information provided by tax authorities in the context of municipalities and debtors), the amount of taxes and fees owed by the consolidated budget of the Republic Dagestan for 2018-2020 continues to be significant and accounts for about 24-27% of the republic's own budget revenues (Tables 3,4,5).

Table 3

Dynamics of amounts owed on federal, regional and local taxes, penalties, sanctions and fines on them to the consolidated budget of the Republic of Dagestan for 2018-2020 (million rubles)

Source: reporting data of tax authorities for 2018-2020.

The structure of taxes and fees owed by the consolidated budget of the Republic of Dagestan to the budget system of the Russian Federation as of January 1, 2021 is as follows: personal income tax – 7%, regional taxes – 49%, local taxes – 25%, special regimes - 4% (Table 6).

At the same time, during the period under study, the largest increase was recorded in federal taxes, among which the largest part is due to VAT and corporate income tax (32% and 10% of the total amount of debt, respectively).

For 2018-2020, there has been an increase in taxes and fees owed to the budget by 14.9%, including the settled taxes and fees arrears also increased by 33.9%, while the taxes and fees impossible to collect decreased by 77.8% during the study period. (Table 4).

Table 4

Structure of arrears on taxes, fees, penalties, sanctions to the consolidated budget of the Republic of Dagestan for 2018-2020 (million rubles, in%)

Source: reporting data of tax authorities for 2018-2020.

Table 4 shows that for three years the debt to the budget for taxes, fees, penalties and sanctions tends to increase. The largest increase in tax arrears was recorded in 2019, which compared to 2018 amounted to 19.4%. The maximum increase in tax debts that cannot be recovered was recorded in 2020 – by 95.1% (Table 4).

The settled tax debt for the period under study tends to increase – its growth in 2020 compared to the previous year was 35%.

Therefore, in order to find solutions to the problem of settling tax arrears, it is necessary to make decisions on specific taxes.

Based on the data in Table 5, it can be seen that the debt on federal taxes and fees for 2019-2020 tends to decrease by 27.6%, and for the entire study period, i.e. 2018-2020, decreased by only 8.3%. The share of arrears on federal taxes, penalties, fines and tax sanctions in the amount of federal tax revenues for the analyzed period decreased from 11% to 8.0%, however, at the same time, this indicator increased for regional (from 97% to 107%) and local taxes (from 153% to 167%, respectively).

Table 5

Dynamics of tax arrears on taxes, fees, penalties, sanctions and fines to the consolidated budget of the Republic of Dagestan for 2018-2020, million rubles.

Source: reporting data of tax authorities for 2018-2020.

In accordance with the statistical tax reporting of tax authorities as of January 1, 2021, the structure of arrears on taxes, fees, penalties, sanctions, fines administered by the Federal Tax Service of Russia in the Republic of Dagestan (14,540.3 million rubles) is as follows: personal income tax – 611.1 million rubles, corporate income tax – 535.6 million rubles; transport tax – 4383.7 million rubles; corporate property tax – 547.7 million rubles; personal property tax – 678.3 million rubles; land tax – 1670.8 million rubles; under special tax regimes – 330.4 million rubles and other taxes – 174.3 million rubles (Table 6).

Table 6

Dynamics of tax arrears to the budget system of the Russian Federation in the context of taxes and insurance premiums administered by the Federal Tax Service of Russia for the RD

for 2018-2021 (million rubles)

Source: reporting data of tax authorities for 2018-2021.

Thus, a significant amount of debt continues to be a serious problem, limiting the amount of financial resources of the State.

Debt is an important fiscal reserve of the revenue side of the budget and for its effective use it is necessary to investigate the nature of its formation.

The spread of a new coronavirus infection in the republic in 2020 had a negative impact on the economic situation in the region, a decline in the purchasing power of the population, a decrease in the tax base for taxes and, accordingly, a decrease in receipts for a number of tax and non-tax revenues.

The factors that influenced the increase in the amount owed to the budget of the republic include the consequences of the spread of a new coronavirus infection in the republic in 2020, and as a result, a decline in the purchasing power of the population, a decrease in the profitability of enterprises and a decrease in the tax base and tax revenues for corporate income tax, excise taxes on alcohol and mineral extraction tax and other taxes.

So, for 2020, tax revenues to the republican budget of the Republic of Dagestan decreased relative to 2019 for corporate income tax – by 5.5% (-275.1 million rubles), for excise taxes on alcohol – by 6.7% (- 127.4 million rubles), for excise taxes on fuel and lubricants – 2.0%, subject to redistribution to the budgets of the subjects of the Russian Federation in accordance with the established standards, mineral extraction tax – by 14.8 percent (- 5.5 million rubles).

The decrease in corporate income tax receipts is due to a decrease in the tax base of the main category of taxpayers participating in the REAG, associated with a deterioration in the results of financial and economic activities, due to the spread of the new coronavirus infection covid-19.

The decrease in excise tax receipts on alcohol was influenced by a decrease in the tax base, which is associated with a drop in demand for alcoholic beverages during the economic crisis.

In addition, in 2020, compared to last year, revenues to the local budgets of the Republic of Dagestan decreased for such taxes as: UTII – by 32.2%, land tax – by 8.8%, non–tax revenues - by 37.9 percent, which is also due to the consequences of the spread of covid-19 and the implementation of anti-crisis measures at the federal and republican levels, including  to reduce tax rates and postpone the payment of advance payments on taxes.

One of the reasons for the formation and growth of tax arrears on taxes, fees, penalties, sanctions and fines to the consolidated budget of the Republic of Dagestan is the low level of income of the population in the region, the desire of entrepreneurs to hide their income from taxation. Thus, the size of the average monthly accrued wages of employees in organizations, individual entrepreneurs and individuals in the Republic of Dagestan (23.0 thousand rubles for 9 months of 2020), as well as the size of the average monthly nominal accrued wages of employees for a full range of organizations in the economy as a whole (28.9 thousand rubles for November 2020) remain the same among the lowest not only among the subjects of the North Caucasus Federal District, but also throughout the Russian Federation.

In order to eliminate interregional differentiation in wages, we consider it expedient to consider the possibility of using in the regions of the North Caucasus Federal District when planning expenses for increasing wages for certain categories of public sector employees and assessing the achievement of the values of the target wage indicators, the indicator of the average monthly nominal accrued wages of employees for a full range of organizations in the economy as a whole.

At the same time, we note that the debt of budgetary institutions of the Republic of Dagestan (federal, regional and local significance) as of July 1, 2021 amounted to 933.7 million rubles and increased by 162.7 million rubles (or 14.7%) relative to the results for the 1st quarter of 2021.

At the same time, the largest part of the debt of budgetary institutions of the Republic of Dagestan is due to taxes and insurance premiums – 58% (or 539.5 million rubles), which was formed, including as a result of the non-indigenous transfer of powers to administer insurance premiums of the Branch of the Pension Fund of Russia for the RD from January 1, 2017 to tax authorities that relate to taxes, fees that cannot be collected.

Having analyzed the sectoral structure of the tax debt of budget institutions of the Republic of Moldova, we note that of the total amount of debt on taxes, fees, fines, penalties, sanctions and insurance premiums, the dominant part (about 66% - 615.3 million rubles) falls on healthcare institutions – 361.9 million rubles (39%) and education – 328.1 million rubles (27%). At the same time, healthcare institutions mainly have to repay the specified debt at the expense of the FOMSA, which is why there are difficulties in paying these contributions ^[25].

The growth of arrears on taxes, fees, fines, penalties, sanctions and insurance contributions of budgetary organizations and institutions of the Republic of Dagestan indicates the low payment discipline of taxpayers and the lack of control on the part of the heads of institutions for the timely fulfillment of tax obligations for the reporting period, and often the repayment of arrears on previously incurred obligations on taxes and fees for the previous period.

As a result of late payment of the amounts of taxes, fees, insurance premiums due for the reporting period, at a later date than the terms established by the legislation on taxes and fees, interim measures of recovery are applied in accordance with Article 75 of the Tax Code of the Russian Federation in the form of accrual of penalties for each calendar day of delay in fulfilling the obligation to pay tax starting from the following established by the tax legislation of the day of payment of tax on the day of fulfillment of the obligation to pay it, inclusive, at the rate based on the number of overdue days.

In addition, the reasons for the formation of arrears on taxes, fees, penalties, sanctions and fines of budgetary institutions include the following:

1) technical errors of organizations when paying taxes (incorrect indication of budget classification codes (KBK) and OKTMO, as a result of which the accrued amounts and payments made are reflected in different personal accounts, i.e. there is a debt for one KBK, in another - overpayment);

2) accrual by tax authorities of arrears on the unified social tax credited to the Social Insurance Fund of the Russian Federation and canceled since 2010;

3) accrual by tax authorities of arrears on taxes, fees, penalties, sanctions and fines in respect of liquidated organizations, as well as organizations declared bankrupt, etc.

Considering that the growth of tax arrears negatively affects the amount of financial resources of the country's budget and restricts the state in the ability to fulfill its socially significant obligations, tax authorities and executive authorities should first of all be interested in reducing the level of tax arrears and increasing the level of collection of taxes and fees.

In order to achieve a balance of state interests and business entities, various methods of reducing tax arrears are used, which include both voluntary and compulsory measures, including judicial ones.

At the present stage, the main methods of tax evasion are often based on complex schemes for reducing business income, using intermediary firms, one-day firms and artificial business fragmentation. In order to prevent artificial fragmentation of business in tax evasion schemes, it is proposed to expand the list of powers of tax authorities in terms of control measures (Article 45 of the Tax Code of the Russian Federation)  in relation to the beneficial owners or possible legal successors of organizations, in the course of deliberate bankruptcy. The implementation of these measures will ensure the receipt of tax arrears to the state budget, which have been formed in respect of organizations that do not have assets on the balance sheet to repay debts, as well as organizations that carry out deliberate bankruptcy.

Systematic inventory of the amounts owed on taxes and fees will allow to identify the causes of debt formation (lack of financial resources from the taxpayer or deliberate tax evasion), to determine the possible amounts to be collected in the budget system, as well as the real tax potential of the subject of the Russian Federation when forecasting the revenue part of the budget of the region.

As a set of measures to reduce tax arrears, it is proposed to implement measures aimed at improving the quality of tax administration and the effectiveness of the forms and methods of tax control used, preventing the possibility of tax evasion (fictitious bankruptcy of organizations), as well as the application of a set of measures to recover impossible tax debts, in accordance with the Tax Code of the Russian Federation, in including with the participation of tax, law enforcement and judicial authorities. In particular, it is possible to highlight the implementation of the following measures for the compulsory collection of arrears:

- transformation of the property of large budget debtors of taxes and fees and insolvent enterprises into republican or local ownership, respectively, in order to repay the debt (for the amount of the debt);

- implementation by regional and local public authorities, together with tax authorities, of measures aimed at the possibility of writing off hopeless arrears (for example: clarifying the criteria for classifying enterprises as non-solvent; determining the amounts of hopeless arrears; developing a mechanism for writing off hopeless arrears, etc.)

- strengthening of the accounting and analytical component of the activities of tax authorities, the development of preventive measures, the active application in the control practice of tax authorities of a comprehensive (pre-verification) analysis of financial and economic activities of taxpayers.

One of the directions for the repayment of tax debts is the systematic monitoring by tax authorities of the repayment of debts by state and municipal employees, as well as employees of budgetary and state institutions.

Based on foreign experience, it is proposed to carry out activities aimed at improving the level of qualification of tax authorities in terms of identifying secondary signs of violation of tax legislation, as well as increasing the level of tax culture of the population ^[5].

Taking into account that in the total amount of taxes and fees owed, the predominant part falls on the debt on transport tax levied from individuals and, given that measures of compulsory collection of this tax from individuals are possible only in court, it is advisable to pay special attention to the implementation of pre-trial measures aimed at paying off the debt. Thus, it is proposed to legislatively provide for the obligation of the payer of the transport tax to present a certificate of the tax authority on the absence of arrears in the payment of transport tax during registration, re-registration of vehicles ^[6].

Thus, in order to reduce the debt on taxes and fees, the tax authorities with the participation of the judiciary, the prosecutor's office and other interested departments need to continue working to ensure timely and full payment of taxes, liquidation and reduction of existing debts on taxes, fees, penalties and contributions, in particular, to ensure the implementation of the following measures:

activation of the work of tax, judicial and law enforcement agencies and municipalities within the framework of the Procedure for Interaction on the Organization of joint measures to ensure the completeness and timeliness of court orders issued on applications for tax collection at the expense of the taxpayer's property in accordance with Article 48 of the Tax Code of the Russian Federation;

systematic holding of meetings of interdepartmental commissions with the participation of tax, judicial and law enforcement agencies and municipalities and the invitation of heads of budgetary institutions, taxpayers with tax arrears on the issue of clarifying the causes of its occurrence and the possibility of its repayment;

to conduct a reconciliation of data on tax arrears by the subjects of the Russian Federation (cities and districts) to the territorial bodies of the Pension Fund of Russia together with the tax authorities and to consider the possibility of writing off debts on taxes and fees formed during the non-indigenous transfer by the territorial bodies of the Pension Fund of Russia from January 1, 2017 of the powers to administer insurance premiums to the tax authorities;

reduction of arrears in taxes and fees, including as a result of the emergence of additional income due to the analysis of the effectiveness of leasing state property, ensuring the interaction of tax, judicial and law enforcement agencies, legalization of "shadow" employment, etc.;

conducting awareness-raising and agitation work with the population in order to timely pay taxes and fees.

In addition, it should be noted that one of the reasons for the growth of tax arrears in our country is a high level of tax burden, low income of the population and business entities, high unemployment, systematic consequences of economic crises in the economy and a low level of tax culture, etc.

Thus, in order to reduce the level of debt on taxes and fees, it is advisable not only to increase the level of efficiency of tax control and tax administration measures, but also to create favorable conditions for the development of small and medium-sized businesses, expand production, increase investment activity and stimulate economic entities to obtain the status of a law-abiding taxpayer.