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Putin Wants A “Vanity Tax” For Russia’s Super-Rich

By: EW News Desk Team Date: 22 February 2012

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22 February 2012

Russian Prime Minister, and prospective Presidential candidate, Vladimir Putin intends to implement a luxury tax on his nation’s super-rich population, reported the Moscow Times on Wednesday, after the Prime Minister claimed that the country’s oligarchs were spending too much on expensive houses and cars.

The Russian politician said that his proposed tax would be a “moral-ethical” measure for his country, particularly as the rich continued to engage in “prestigious consumption”, while “refusing to invest in development in favour of overconsumption and vanity."

"Key steps should be taken this year so that next year owners of expensive houses and cars pay more tax," wrote Putin as he outlined his new economic program. Care should also be taken to guarantee that the new tax does not hit the middle class, he added.

An additional tax rate for luxury purchases in Russia has been a long-mooted idea. In 2009, Putin himself suggested that tax rates should be higher for those owning expensive apartments or large plots of land.

Last Friday, Russian Finance Minister Anton Siluanov revealed that the first “vanity taxes” – targeting yachts, expensive cars and houses – could be introduced as soon as by 2013.

These taxes would see luxury car owners pay a higher rate of transportation tax, while the levy on luxury homes will also be raised via a progressive property tax.

"The more expensive the property, the higher the tax," Siluanov said.

The idea also has strong backing among members of the State Duma. Even Mikhail Prokhorov – Putin’s presidential rival and a billionaire himself – has endorsed the plan, along with additional tax hikes on tobacco and alcohol.

However, some legal experts believe that Putin’s plan could be ineffective, due its lack of definition of what exactly comprises “luxury.”

“When they tried similar laws in the United States and Norway at the beginning of last century, they found that what counts as a luxury changes over time. For example, at the moment a Bentley is a luxury. But what if in a few years maybe it would become accessible to many more people? Then you're in favour of lots of people who are basically middle class paying a tax, and you're impacting the middle class," said Sergei Gorbilev, a lawyer at Yukov, Khrenov & Partners.

"It could be a great law, maybe in two, or maybe in 25 years. But 2013 is too soon. There are just too many loopholes in Russian legislation," Gorbilev added.

Other observers, including luxury car and yacht dealers, noted that the proposed laws could fail to have its intended impact, given how the super-rich could easily circumvent the rules.

"Less and less of our business is in Russia. Lots of our clients buy and keep their boats on the Mediterranean. So whatever tax there is in Russia doesn't really make a difference," said Alexi Torsky, owner of Premium Yacht.

Apart from establishing a new company or other legal entity and transfer one's home, yacht or luxury car to it, Russian oligarchs could simply “just not declare your luxuries”, noted Gorbilev, who pointed out how public officials would publicly declare very modest incomes, but turn out to have incredibly wealthy wives and children.