Russia's Federal Tax Service (FNS) has begun sending letters to able-bodied unemployed citizens who make large purchases — real estate, cars and yachts — demanding written explanations and documents confirming the income used for the acquisitions, according to lawyers and materials from one tax inspectorate cited by RBC.
In addition to the origin of the money, tax officials are interested in whether the purchased property is rented out and generates income, RBC reported.
Dmitry Lomakin, general director of the law firm Formula Soglasiya, whose client received one such notice, said the FNS is thus “testing the mechanism of imputing income based on expenses.” “The idea is this: please report, file 3-NDFL declarations, declare income and pay taxes,” Lomakin explained the purpose of the requests.
Among the documents tax officials may request are 3-NDFL declarations for 2020–2024, documents for obtaining loans or mortgages that citizens submit to banks, and bank account transaction statements.
Such requests have been received by residents of Moscow and the Moscow region, Perm Krai, Tatarstan and St. Petersburg. According to RBC, Moscow accounts for nearly 10% of Russia's population but provides almost 30% of all personal income tax revenues.
If the tax service determines that citizens have not declared all their income, they may face additional personal income tax assessments, penalties and fines. “To put it simply, a citizen is not obliged to remember in which nightstand he found the money to buy yachts, palaces and Bentleys and how long ago that money was lying there,” noted tax lawyer Ivan Yagolovich.
According to The Moscow Times, the tax service and the Finance Ministry are struggling to meet their own collection targets, said Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Centre in Berlin. In the first half of the year, the federal budget ran a deficit of 5.7 trillion rubles — 1.6 times higher than the full-year plan.
Banks are recording a sharp increase in “gray” cash settlements among businesses and record outflows of money into cash: according to the Central Bank, the volume of cash in circulation has increased by 2 trillion rubles since the start of the year — twice as much as in all of last year. By year-end, the banking system could lose 3.8 trillion rubles due to the outflow into cash, predicted Sberbank Deputy Chairman Taras Skvortsov. If that estimate proves accurate, the increase in cash in circulation would be the largest on record, exceeding the pandemic-era peak of 2.8 trillion rubles in 2020 and the first-year-of-war peak of 2.3 trillion rubles.
“Gray turnover is growing… this is more typical for small and medium-sized businesses; there is almost no such situation for large businesses. And so the main reason here — what we assume — is the increase in the tax burden,” Skvortsov said.
“It is clear that people cannot and do not want to pay more, and therefore use various schemes for optimization,” Prokopenko explained. In her view, the FNS has actively taken on both entrepreneurs and individuals, and digitalization allows it to analyze transaction data: “If a person spends more than he earns, it means he has some 'fat' hidden somewhere. Measures to increase collection rates, in plain language, mean that they will definitely come for your taxes.”