Turnover tax, sales tax and value added tax as different approaches to the application of universal excise tax

Shamaev Semen Aleksandrovich ORCID: 0009-0006-5542-2632 Postgraduate student, Department of taxes and tax administration, Financial University Under The Government Of The Russian Federation 26 Velvatny Ave., Tula, Tula Region, 300910, Russia semen220999@gmail.com

Introduction

At the moment, it is possible to note the imperfection of the current fiscal system of the Russian Federation and its weak ability to implement its key functions, such as ensuring a stable level of budget revenues, activating the economy, and a fair distribution of income between spheres of socio-economic life. The overall indicator of the fiscal burden of the Russian Federation is at the level of 33-35% of the total gross domestic product, which is comparable to the same indicator in the leading countries of the world, but it needs to be reduced, since the socio-economic development of our country is not comparable with them ^{[1, p. 12]}.

In the total amount of tax revenues to the federal budget in 2023, the share of VAT, as a form of universal excise duty, amounted to a significant amount – 40%, to the consolidated budget – 21% (Statistics and Analytics [Electronic resource]. – Access mode: https://www.nalog.gov.ru/rn77/related_activities/statistics_and_analytics/. – (Date of application: 02/18/2024). This level of development determines the need to leave subjects of economic relations and residents of the Russian Federation with more financial resources to ensure their functioning and stable standard of living. It is believed that the fiscal burden should be no more than 30% of the gross domestic product ^{[1, p. 12]}. For this reason, it seems necessary to significantly reduce the tax burden on commercial structures by improving the current tax system of the country. This circumstance determined the relevance of the conducted research.

An analysis of the literature on the use of the universal excise tax showed that most of the works are devoted to the positive and negative sides of the sales tax, as well as its assessment in comparison with the value added tax, and very little attention was paid to the turnover tax. The works of N. E. Barbashova ^[2] and E.V. Vlasova ^[3] are devoted to the issues of the positive and negative sides of the sales tax. The topic of comparing sales tax and value added tax was raised by such authors as V. G. Panskov ^[4], as well as S. A. Bukharova ^[5]. The disadvantage of research on sales tax is the almost complete lack of study of the prerequisites for the emergence of sales tax and the experience of its use in the Russian Federation.

The concept and essence of universal excise taxes

Universal excise tax is a form of indirect taxation of the population, the object of which is the proceeds from the sale of consumer goods and leading to an increase in retail prices of goods. Universal excise taxes currently include the following types of taxes: turnover tax, sales tax, value added tax.

The turnover tax is calculated based on the size of the turnover of the business entity. Sales tax is calculated as a percentage of the value of the goods (services) sold, usually in a retail network. The tax base of the value added tax is the amount of the added value of a good, work or service, determined by various methods.

The history of the development of the Russian tax system

Considering the tax system of the USSR, it is necessary to note its differences from the tax systems of both modern Russia and most of the countries of Europe and the West. So, in the period of the 1930s and 1980s in Soviet Russia there were no excise taxes, instead a turnover tax was applied, and instead of income tax, the accrual of the free balance from profits was used. The progressive personal income tax rate was used from 1943 to 1991, with a slight change in this rate in the late 1980s.

Studying the works of M.A. Troyanskaya, I.A. Maiburov, V.G. Panskov, Sh.A. Magomadov, it can be concluded that the tax system of the USSR was not fully functional, since taxes were charged mainly from individuals and cooperatives, while profit redistribution was carried out in relation to state-owned enterprises, including in the form of deductions from profits or making a free balance of profits to the budget. A similar situation affected taxes paid by the population of the country, since wages were also accrued by state-owned enterprises.

Considering the 1980s, it can be noted that the tax system of the USSR differed from the tax systems of foreign countries. First of all, this was due to the fact that by that time a market economy was operating in them, and this caused methodological changes in tax systems and the unification of the calculation of the main categories of taxes. At the same time, taxes in the USSR were formed in such forms as taxes of the population, turnover tax and deductions of the free balance from profits ^{[6, p. 28]}.

In 1985, perestroika began in the USSR, laying the foundations for the collapse of communism, while the economic reforms that began in the country were due to such a factor as the continued use of extensive methods in the economy. The result was a large number of production facilities, many of which did not bring the proper economic effect.

M.A. Troyanskaya notes the fact that by 1985 attempts to introduce the results of scientific and technological progress into the economic activities of enterprises had failed, and the military-industrial complex, on the contrary, was developing excessively - enterprises of this type accounted for about 70% of the entire industry of the USSR, which negatively affected the country's economy. In addition, it is worth noting that, despite the agrarian reform of 1965, this sector of the economy remained unprofitable and used impressive amounts of subsidies from the state budget. The total number of profitable state farms and collective farms was no more than 30% of their total number ^{[6, p. 28]}.

By 1987, the distributive function of the tax system had been depleted, and it was replaced by administrative methods of tax management. In June 1987, the law "On the State Enterprise (Association)" was introduced, the purpose of which was to increase the importance of economic methods of managing business entities, as well as tools for self-financing organizations while centrally managing the country's economy ^[8].

At this time, the previously used payments began to be replaced by a comprehensive tax system. In particular, a sign of this was the normative distribution of profits, the essence of which was that standards were applied for each enterprise – they determined the percentage of profit that was to be transferred to the budget, sent to specialized industry funds and remained at the disposal of the enterprise (USSR Law No. 7284-XI of 30.06.1987 "On State Enterprise (association)" (expired) // Guarantor. – URL: https://base .garant.ru/1548535 / (date of access: 02/16/2024). The purpose of using this method was to increase the profits of enterprises, as well as to minimize unjustified government interference in their activities.

I.A. Maiburov notes that the attempt to reform the tax system of the USSR can be attributed to the introduction of resource payments, which were similar to the tax on the property of organizations ^{[8, p. 118]}. In addition, in order to increase budget revenue, a sales tax was introduced in 1991. As of the early 1990s, such a tax was used in many foreign countries, in some of them it is still used today ^{[6, p. 29]}.

The essence and significance of the turnover tax

Turnover tax is another form of universal excise tax, which has a long history of existence and preceded the advent of VAT. Turnover tax is calculated from the value of the product at each stage of its promotion without the possibility of offsetting the tax paid at the previous stage, which distinguishes it from modern VAT (Turnover tax: basic concepts and terms [Electronic resource] // Finam. – Access mode: https://www.finam.ru/publications/item/nalog-s-oborota-20230629-0909/#:~:text=Tax%20c%20 turnover%20-%20tax,is %20tax%20n%20The added%20 cost. – (Date of application: 02/19/2024). Turnover tax is a tax in the form of a percentage of the price of goods produced within the country, levied to the state budget as these goods are sold commercially. Turnover tax payers are individuals and legal entities, and the former, among others, include individual entrepreneurs and the self-employed, that is, the main subjects of transactions aimed at the sale and purchase of goods and services, as well as the transfer of ownership of various assets.

Ireland and Latvia can be mentioned as countries that have practiced the use of turnover tax. For example, in Ireland, the turnover tax was introduced in 1963, and in 1966 it was also extended to wholesale trade. The turnover tax was replaced in 1972 by a value-added tax in order to include Ireland in the European community, where the functioning of the turnover tax was not practiced (FinanceAct, 1963 [Electronic resource] // ISB. – Access mode: https://www.irishstatutebook.ie/eli/1963/act/23/section/47/enacted/en/html . – (Date of access: 02/19/2024). The turnover tax in Latvia was in effect from 1992 to 1995. The basic tax rate was 10%, the reduced tax rate was at the level of 2-4%. In 1995, the turnover tax in Latvia was replaced by the value added tax (Taxes in Latvia [Electronic resource] // VisaSam. – Access mode: https://visasam.ru/emigration/europe-emigration/nalogi-v-latvii.html . – (Date of access: 02/19/2024).

According to the Ministry of Finance of the Russian Federation (Official website of the Ministry of Finance of the Russian Federation [Electronic resource]. – Access mode: https://minfin.gov.ru /. – (Date of circulation: 02/18/2024), the main disadvantages of the turnover tax in comparison with the value added tax and one of the reasons for its abolition in the USSR were the cumulative effect, which caused the burden of taxes on the target consumer to depend on the stages of commodity movement, since the turnover tax was levied at each stage sales of goods; such a distribution of the tax burden, which negatively affected the tactics of competition; incomplete tax refund tools, which were included in the cost of purchased resources used in the production of goods that were exported. 

The importance of considering the turnover tax is due to the fact that in recent years the Russian Federation has had a tax regime that provides for large enterprises with multiple benefits and preferences that are inaccessible to other companies. If we consider all these benefits and preferences, then, in general, they look quite reasonable; at the same time, from the point of view of medium and small enterprises, the country's fiscal system looks like it discriminates against their rights, which is prohibited by the Constitution of the Russian Federation. The introduction of a turnover tax will make it possible to solve the problem of injustice against non-large companies.

According to Rosfinmonitoring, today the volume of the country's shadow economy is comparable to 20% of the country's gross domestic product (Financial Intelligence estimated the volume of the shadow economy in Russia at 20 trillion rubles [Electronic resource] // RBC. – Access mode: https://www.rbc.ru/economics/22/02/2019/5c6c16d99a79477be70257ee . – (Date of access: 02/19/2024). According to the author, the solution to this problem is the application of a turnover tax, which will result in an increase in tax collection, as well as the improvement of the fiscal system in the Russian Federation as a whole. Therefore, the application of the tax by taxation of all transactions without any exceptions in parallel with an acceptable rate will stimulate taxpayers to exit the shadow zone and legally conclude transactions.

B.A. Fedosimov in his work "Assessment of the tax burden of enterprises" calculates the tax burden for different types of taxation and concludes that this type of turnover tax is attractive to taxpayers ^{[8, p. 45]}. According to him, the use of turnover tax will reduce the fiscal burden for small and medium-sized organizations, as well as increase the level of tax collection. The author believes that the existing experience of conducting financial and economic transactions through the Russian banking system and the development of the national payment system will fully achieve the high efficiency of the country's tax and fee system. The advantage of introducing a turnover tax is that it will allow you to eliminate taxes such as value added tax, personal income tax, simplified taxation system, taxes on property and profits of enterprises, as well as social taxes ^{[1, p. 22]}.

The author says that the introduction of a turnover tax will make it possible to implement a systematic approach to taxation, in which the tax is levied once – at the time of the transaction – and using a single automated settlement system. This approach has advantages not only for enterprises, but also for individuals, since the latter will have a single fiscal agent, namely a legal entity with which the employee has an employment relationship; at the same time, the employee himself will not have such obligations to the tax system.

A.V. Chekhov believes that with the help of a single turnover tax it will be possible to stimulate both sides of the process of buying and selling goods and services and achieve a reduction in their cost. The consequence of using such a tax will be the refusal to carry out financial transactions involving agents, since the tax will be collected at every stage of the sale of goods and services. According to the author, the use of a single turnover tax instead of the current tax system will lead to a drop in retail prices due to the fact that the total cost of goods and services sold will act as the tax base ^{[9, p. 76]}. Taking into account the opinions of B.A. Fedosimov and A.V. Chekhov, it can be concluded that the application of a single turnover tax can improve the quality of life of the population.

Of the Russian Federation, which is especially important during the period of sanctions imposed on Russia in 2022 and, as a result, a local decline in the social and economic development of a number of regions of Russia.

Thus, the introduction of a single turnover tax in the Russian Federation in the coming years is seen as a theoretically possible alternative to the current value added tax and sales tax, however, this topic requires further discussions, including with the involvement of public authorities, including tax structures.

Sales tax: problems and prospects

Sales tax is an indirect type of tax that is paid based on the results of the sale of a product to a consumer, as a rule, in retail trade ^{[4, p. 6]}. The sales tax limits the ability of the state to regulate all stages of the movement of goods to the consumer from its producers. Also, a characteristic feature of such a tax is that either a single rate or a combination of them can be used in relation to it.

M.A. Troyanskaya notes that as of today there are four types of sales tax. The first of them implies a one-time tax from the manufacturer, the basis for its calculation is the cost of products that have been sold. The second is the wholesale sales tax, which is characterized by a single levy, as well as the use as a taxable base of the cost of products that were sold by a wholesale intermediary to a retailer. The third type of sales tax is a tax applied to a retailer and calculated as the cost of products sold to the end consumer. The fourth type of sales tax is applied to all counterparties and is calculated at a single rate depending on the cost of the products that were sold ^{[6, p. 29]}.

At the moment, the US uses a sales tax, the rate of which is in the range of 0-15%. Despite the fact that such well–developed countries as the United States, Great Britain, Austria and Australia use sales tax as the main tax, it can be noted that most of the countries using such a tax system belong to the "third world" countries - these include states such as Bangladesh, Afghanistan, Bhutan, Gabon, Namibia or Uganda (Sales tax – list of countries [Electronic resource] // Tradingeconomics. – Access mode: https://ru.tradingeconomics.com/country-list/sales-tax-rate . – (Date of access: 02/19/2024).

The beginning of the use of sales tax in the USSR occurred in 1991; in another way, this tax was called "Gorbachev's", and its introduction caused outrage among most of the population. In the USSR, such a tax was allocated separately for the sale of products, while it was divided between the republican and union budgets, but since 1991, significant changes have taken place in Russian legislation, and already in January 1992 the law "On the Basics of the tax system in the Russian Federation" was introduced, which abolished the use of sales tax, which was replaced by the value added tax (Law of the Russian Federation No. 2118-1 dated 12/27/1991 "On the Basics of the Tax system in the Russian Federation" (expired) // Consultant-Plus. – https://www.consultant.ru/document/cons_doc_LAW_207 / (date of access: 02/16/2024).

In 1998, the return of sales tax to the tax practice of the Russian Federation was noted, and it was applied as a regional tax. The impact of this type of tax on the country's tax system was expressed in the refusal of regional authorities to simultaneously use part of regional taxes and fees, as well as tax on the needs of educational institutions (Federal Law No. 150-FZ dated 07/31/1998 "On Amendments and Additions to Article 20 of the Law of the Russian Federation "On the Basics of the Tax System in the Russian Federation" (expired) // The Guarantor. – https://base .garant.ru/179174 / (date of access: 02/17/2024). Despite the reduction in the total amount of taxes and fees levied, which led to these innovations, the sales tax was used in all regions of the country in the period 1999-2000.

The repeated abolition of the sales tax occurred in 2004, the reason for which was the simultaneous use of value added tax, which led to a complication of the tax system and problems with tax payments for most taxpayers ^{[4, p. 6]}. In addition, the disadvantage of the simultaneous use of sales tax and value added tax was an increase in the cost of their administration, which was observed against the background of the lack of a positive effect on the total amount of budget allocations.

As a result of these disadvantages of using sales tax, it was recognized as an ineffective tax – in particular, the fees from its use were an order of magnitude lower than the fees from value added tax. So, in 2003, the fees from the first amounted to 56 billion rubles, while the fees from the second amounted to 882 billion rubles ^{[6, p. 30]}. Thus, the history of the practical use of sales tax in the Russian Federation has been completed.

More than 10 years after the abolition of the sales tax, the authorities of the Russian Federation returned to discussing its reintroduction in 2015. The justification was that many employees of government agencies considered that its introduction could be an adequate substitute for increasing the value added tax rate from 18 to 20% in 2019 ^{[6, p. 30]}. Also, the argument for its possible introduction was the possible simplicity of its administration due to the digitalization of the economy and, as a result, the introduction of new types of cash registers.

M.A. Troyanskaya believes that the re–introduction of the sales tax can solve a number of problems, such as insufficient distribution of budget revenues - the sales tax is planned as a regional tax, which will lead to the receipt of additional funds to the budgets of the constituent entities of the Russian Federation. In addition, the issue of introducing such a tax at the regional level with a rate of up to 3% is currently being considered ^{[6, p. 30]}. According to the author, the offer is acceptable in connection with the above advantages.

Despite the possible advantages of reintroducing sales tax in the Russian Federation, there are also weaknesses of this approach. So, in this case, the basic principle of taxation will be violated, which consists in prohibiting the simultaneous use of taxes having the same tax base. The second argument against the introduction of a sales tax is the need for additional financial sources of financing for its administration – while the costs will be imposed on both taxpayers and tax authorities. As the experience of the introduction of this tax in 1991 and 1998 has shown, its administration requires much more financial resources than the administration of other types of taxes.

Also, as a disadvantage of the introduction of a sales tax, an increase in the number of taxpayers can be noted, since these will be trading entities of all scales. In addition, the number of employees who will have to administer this tax will increase. All these costs will be observed against the background of weak fiscal efficiency of the tax – as the experience of its introduction has shown, the level of collection of sales tax was no more than 60-65% ^{[6, p. 16]}.

V.G. Panskov notes that the problem of reintroducing the sales tax lies in the fact that its collection rate will strongly depend on the region. Thus, according to the estimates of the Gaidar Institute, the largest amount of tax, namely 63%, would be received by the subjects of the Russian Federation, and so having a high turnover – Moscow would receive 15.6% of revenues, the Moscow region – 6.3%, St. Petersburg and Krasnodar Territory - 4.2% each ^{[4, p. 56]}. This fact means that additional financial resources will be received by regions that already do not need financial support; other regions, whose budgets are in systematic deficit, will receive practically nothing. All these facts suggest that the sales tax does not need to be introduced in the near future.

Thus, it can be noted that the sales tax is probably the most controversial payment in the history of the Russian tax system. At the moment, the sales tax practically duplicates the value added tax and its introduction will violate the basic principle of taxation, which consists in prohibiting the simultaneous use of taxes having the same tax base. Therefore, the introduction of a sales tax into the tax system is currently impractical.

The concept and essence of value added tax

The introduction of value added tax as an alternative to sales tax in Russia since 1992 also has its drawbacks and advantages. Value added tax is an indirect type of tax in the form of payment of the added price of a product arising from its production.

Currently, value added tax is used in 137 countries. The most significant rates in this case are used in Hungary, namely 27%, as well as in Sweden, Denmark and Norway – 25% each. No tax is applied in the USA – duties here are much less than VAT deductions in the largest countries of the world. It is worth noting that value added tax is not used in wealthy Arab states with large resources, namely Kuwait, Qatar, Oman, Bahrain (VAT in the countries of the world in 2024 [Electronic resource] // VisaSam. – Access mode: https://visasam.ru/emigration/vybor/nds-v-mire.html . – (Date of access: 02/19/2024). Assessing the practice of applying value added tax in different countries of the world, it can be noted that the principle of applying the tax is the same everywhere; only the rate for taxpayers and the amount of benefits for them differ. The tax is credited to the federal budget of the Russian Federation according to the standard of 100% ^{[21, p. 21]}.

According to A.A. Bukharova, the practice of using value added tax has demonstrated that the VAT calculation mechanism leads to the fact that the price of products and services increases due to the high costs of its movement and production. As a result, the demand for goods decreases, and the degree of consumer dissatisfaction increases. The advantage of value-added tax is the opportunity for producers who transfer it to reduce the amount of payments by deducting incoming value-added tax ^{[6, p. 7]}. Characterizing value-added tax, Sh.A. Magomadov says that it is the most difficult to understand, calculate and pay compared to other taxes Despite the fact that at first glance it looks very burdensome for business due to its indirection – unlike direct tax, indirect tax is shifted to the end user of the product ^{[10, p. 21]}.

According to the Kommersant publication, by the end of 2022, the treasury of the Russian Federation received 6.489 trillion rubles due to the standard value-added tax and 3.063 trillion rubles due to the value-added tax on imported goods (the budget was filled with mineral extraction tax and VAT [Electronic resource] // Kommersant. – Access mode: https://www.kommersant.ru/doc/5774268 . – (Date of access: 02/18/2024). Thus, the total tax revenues for this period amounted to 9.552 trillion rubles.

Sh.A. Magomadov believes that the main factors influencing the formed indicator are economic, structural and temporary factors. The main economic factors that formed the value added tax in 2022 include inflation and growth in gross domestic product, temporary and structural factors – an increase in the cost of oil, a decrease in capital construction costs and an outstripping increase in advances. Tax administration expenses also make a big contribution to the formation of this indicator. Thus, we can say that value added tax is one of the most important and complex taxes in Russia, which is influenced by many environmental factors ^{[10, p. 21]}.

Considering the disadvantages of value added tax, it can be noted that the main disadvantage for enterprises paying it is the need for careful maintenance of complete tax and accounting records. More rigorous checks are used against such companies.

A.G. Margaryan notes that many large companies are aimed at working exclusively as conscientious value-added tax payers. Accordingly, those who do not pay it may lose potential partners ^{[11, p. 13]}.

Drawing parallels between the level of value added tax and the standard of living in the country, V.G. Panskov notes that the tax is mainly not an indicator of the standard of living in the state. In addition, high tax rates, on the contrary, in some cases indicate a difficult state of the economy in the state [12 p. 13].

Thus, value added tax is currently one of the key payments for legal entities in the Russian Federation. Most civilized countries prefer value-added tax as a universal excise tax, which indicates its greater viability and compliance with the economic and social needs of the state.

Conclusion

To summarize, it should be noted that the sales tax was first introduced on the territory of the USSR in 1991 and was valid for only one year, later with the collapse of the USSR it was replaced by VAT. The sales tax was in effect for a short period of time and therefore neither he nor the methods of payment were adjusted. The sales tax was abolished again in 2004, the reason for which was the simultaneous use of value added tax, which led to a complicated tax system and problems with tax payments for most taxpayers.

The main advantage of value added tax is that most large enterprises prefer to work only with contractors who pay the tax, and its use increases the likelihood of high commercial results for such companies. The weak side of VAT is that careful checks are applied to companies working with it, and any shortcomings in its payment lead to significant fines.

Based on the results of the work, it was concluded that, choosing between value added tax and sales tax as an alternative, most civilized countries prefer the former, which indicates its greater viability and compliance with the economic and social needs of the state.

As an alternative to these types of taxes, researchers and economists call a turnover tax, which will be able to increase its collection by withdrawing enterprises from the shadow sector. It also makes it possible to reduce retail prices for goods and services and, as a result, improve the quality of life of the population. The introduction of a single turnover tax is seen as a theoretically possible alternative, but this topic requires further discussion, including with the involvement of public authorities, including tax structures.