Higher income tax to improve 2015 budget balance

Under the pretext of improving birth rates with financial means, Belarus’ income tax might be raised from 12% to 13% in 2015. In 2014, income tax was one of the main sources of budget revenues. Higher income tax rate might compensate for the losses in revenues from the profit tax (corporate tax). The additional budget revenues will be partially spent on helping large families, however the bulk of it will be spent on other state programmes and patching other holes in the budget.

The Finance Ministry reported that in H1 2014, Belarus’ consolidated budget raised EUR 1.1 bln from the income tax, which is 20% more compared to the same period in 2013. After VAT revenues (EUR 2.3 bln), income tax is the second-largest source of budget revenues. The growth of income tax proceeds was due to wage-growth in Belarus.

The Belarusian authorities are proposing to increase the income tax, citing the need to raise the birth rate in order to improve Belarus’ demographic. If increased from 12% to 13%, additional budgetary revenues from the income tax would total circa EUR 185 mln during one year (provided that wages did not change). In 2015, the government also plans to reduce the corporate tax from 18% to 15%, and raise the VAT from 20% to 22%. As a result, the government aims to increase budget revenues.

In part, additional budgetary revenues will be used to support large families. The government intends to open a deposit for each newborn, which will be corrected by the BYR/USD exchange rate. Meanwhile, in 2015 Belarus might also increase her budget expenditures on power structures, recalling the events in Ukraine and preparing for the presidential elections in Belarus. Sanctions imposed by the United States and the EU on Russia may reduce Belarus’ foreign trade revenues. In addition, regardless of the planned modernisation reforms, the government will continue supporting agriculture through the state-funded programmes. The government anticipates raising additional funds to cover the additional costs by increasing VAT and income tax rates.

The government has decided to redistribute citizens’ incomes once again. While it may adopt some measures to stimulate the birth rate growth, it will spend the bulk of the additional proceeds from higher taxes on addressing other ongoing needs.