03.04.07

Regressive Scales for Unified Social Tax
and Pension Fund Payments
Elizaveta Titarenko,
Accountant, Alinga Consulting Group

All organizations and companies in the Russian Federation must calculate and pay contributions toward the Labor Pension Fund and those using the standard taxation system (as opposed to the simplified taxation system) must calculate and pay Unified Social Tax.

Funds collected from these payments help provide Russian citizens with important social services. The Unified Social Tax funds various benefits, including paid sick days and vacations at the expense of the Social Insurance Fund. The Pension Fund is designed to provide work pensions to Russian citizens.

The Unified Social Tax rate begins at 26% of the individual’s tax base, and reduces based on a regressive scale (see table 1). The regressive scale was established by the government to encourage organizations to declare all income and thus bring hidden wages out of the “shadows.” The scale works such that the higher the salary earned per fiscal year (cumulative), the less tax paid by the company.

The Unified Social Tax includes contributions to:

1. The Federal Budget (20%);
2. The Social Insurance Fund (2.9%);
3. Obligatory Health Insurance Funds:
    - Federal Fund of Obligatory Health Insurance (1.1%);
    - Local Funds of Obligatory Health Insurance (2.0%).

Table 1.
The Regressive Scale for Unified Social Tax

Tax base for private persons, calculated from the beginning of the year	Federal Budget	Social Insurance  Fund	Mandatory Health Insurance Fund		Total
			Federal	Local
< 280,000	20.0%	2.9%	1.1%	2.0%	26.0%
280,001 < 600,000	56,000 + (S - 280,000) *7.9 %	8120 + (S - 280,000)*1.0%	3080 + (S - 280,000) *0,6%	5600 + (S - 280 000)*0,5%	72,800 + (S - 280 000)*10.0%
> 600,000	81,280 + (S - 600,000)*2.0%	11,320	5000	7200	104,800 + (S - 600 000)*2.0%

Note: S = taxable salary of the individual
Note: All numbers not indicated as percentages indicate amounts in Russian Rubles
Note: figures in red indicate maximum annual payments to the fund

Pension Fund Payments

Pension Fund payments to the Federal Budget made for the Unified Social Tax can be reduced by 14%. Depending on the year of birth of the insured person, contributions to the Pension Fund may be paid to the insurance and savings portions of the work pension, or only to the insurance portion.

• For employees whose birth date is prior to 1966, contributions are paid only toward the insurance portion of the labor pension (14%).
• For employees whose date of birth is 1967 or later, contributions are paid for financing the insurance portion (10%) and savings portion (4%) of the labor pension.

Table 2
The Regressive Scale for Pension Contributions.

Tax base for private persons, calculated from the beginning of the year	For those born in or before 1966	For those born in or after 1967 (rates apply for taxation during the years 2005 – 2007; they are due to change after 2007)
	Insurance Portion	Insurance Portion	Savings Portion
> 280 000	S*14%	S*10%	S*4%
> 280 001   600 000 <	39,200 + (S - 280,000)*5.5%	28,000 + (S - 280 000)*3.9%	11,200 + (S - 280 000)*1.6%
600,000 <	56 800	40,480	16,320

Note: S = taxable salary of the individual
Note: All numbers not indicated as percentages indicate amounts in Russian Rubles
Note: figures in red indicate maximum annual payments to the fund

Thus, everyone benefits from the regressive scale for calculating the Unified Social Tax and Pension Fund contributions; there are no significant legislative obstacles to setting high salaries for employees.

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