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Chapter 7: The Russian Tax Account

Russian Taxation Rules

Every farmer must report for the tax authority his quarterly sales and income for purchase tax and income tax purposes. The principles are rather simple, nearly only covering cash sales and cash costs.

Russian farmers pay two or three kinds of taxes:

3% Sales Tax on total sales, since January 1994. There is no refund, if the farmer has more cost than sales in one quarter. The Russian name is "Special tax."
20% Value Added Tax on sales minus purchases. If the farmer had more cost than sales in one quarter, he will have the paid Value Added Tax refunded from the state. The English abbreviation: VAT, Russian abbreviation: NDS. VAT on purchased machines is legally deducted, and VAT on sold machines is compulsory. There exist special favourable terms of refunding 50% of farm building costs.
35% Income Tax on Taxable Farm Profit. Farmers are excepted from this tax in the first five years after their establishment, or
70% Income Tax on Taxable Business Profit. There is no five-year exception from this tax on non-agricultural activity.

The Taxable Farm Profit is defined in the following way. -

Allowance for paid Sales Tax and Value Added Tax
No taxation of change in stock or livestock
Allowance for depreciation of assets according to special rules, with inflation taken into consideration

The farmer is obliged to inform the tax authorities of his sales and income quarterly on a certain one-page form at the latest 19 days after the end of the quarter. The matching tax should be paid at the same time. As mentioned above, the principles of the tax accounts are rather simple.

The period is short, only three months
There is no interdependence between periods
The basis for taxation includes cash sales, cash costs, and assets allowance by end

According to these principles, it is rather easy to show the taxable income and to calculate the different taxes in the farmer's tax account. Entrepreneurs in other sectors than agriculture pay 70 per cent income tax on business profit. It is quite common, that farmers make other business beside their agricultural business. The income taxation rule of other sectors is put into force, when a farmer has more than 30% of non-agricultural sales.

Wage earners pay approximately 12% income tax. This tax is to be withheld by the employer. Besides the wage cost, the employer has other costs of hired staff such as contribution to pension funds. Tax of wage earners' interest income is withheld by the bank. Tax of entrepreneurs' interest income is not withheld. Instead, the farmer must show this income in his tax form.

Principles for the Tax Accounts

Which figures should be shown in the Tax Account? That is a question of which information is needed to fill the Tax Form, and what is expected by the tax authorities.

The bookkeeping practice should follow the demands of the tax authorities. The vouchers need to be controlled by Consultancy Centre staff, cash balance controlled, etc. It is important, that the tax authorities believe in the Consultancy Centre's work, so it must be properly done.

When should an income or a cost be entered the books? When the buyer and seller agree on the amount. If the amount is paid, then at the month of payment.

A Proposal for Plan of Accounts

Tax Form	Account	Text	Cash	Non-Cash	Sum
	20	Sales 1 (crops)	Х
	21	Sales 2	Х
	22	Sales 3	Х
	23	Sales 4	Х
	24	Sales 5	Х
	25	Sales 6 (milk)	Х
	26	Sales 7 (animals)	Х
	27	Sales 8	Х
	28	Sales 9	Х
	29	Sales 10	Х
1		Total Sales, Taxes Excluded			Х
1A		non-processed agricultural sales			Х
1B	30	Processed agricultural sales		Х
1C	31	Work and service for other firm		Х
	32	Income form realisation	Х
	33	Interest from bank	Х
	34	Yields from value papers	Х
	35	Other income 1	Х
	36	Other income 2	Х
2		Interest, yields, realization income, etc.			Х
3		Total taxable incomes, row 1+2			Х
3A	37	Non-agricultural part		Х
4A	38	Credits obtained	Х
	39	Dotations from budget funds	Х
	40	Assurance received	Х
	41	Other donors, non-budget funds	Х
4		Credits obtained, dotations, etc.			Х
5	42	Depreciation by end of use		Х
	43	Repair 1	Х
	44	Repair 2	Х
6		Cost of repair			Х
	45	Production costs 1 (crops)	Х
	46	Production costs 2	Х
	47	Production costs 3	Х
	48	Production costs 4	Х
	49	Production costs 5	Х
	50	Production costs 6	Х

	51	Production costs 7	Х
	52	Production costs 8	Х
	53	Production costs 9	Х
	54	Production costs 10	Х
	55	Production costs 11 (animals)	Х
	56	Production costs 12	Х
	57	Production costs 13	Х
	58	Production costs 14	Х
	59	Production costs 15	Х
7		Costs for production work and service			Х
8	60	Salaries	Х
9	61	Payments to farm members	Х
10	62	Social and medical insurance	Х
11	63	Depreciation		Х
12	64	Leasing paid	Х
13	65	Obligatory insurance payment	Х
	66	Interest 1	Х
	67	Interest 2	Х
	68P	Reserved
	69P	Reserved
14		Interest paid			Х
	70	Sales commision paid	Х
	71	Specialists paid	Х
	72	Telephone etc.	Х
	73	Bank costs	Х
	74	Other expenses	Х
	75P	Reserved
	76P	Reserved
15		Other expenses			Х
16		Total deductible costs			Х
16А		Costs for agricultural sales			Х
16В	77	Costs for processed agr. sales		Х
16С	78	Costs for work and service for other firms		Х
16D	79	Costs for non-agricultural sales		Х
17		Investments and repayments			Х

	80	Buildings	Х
	81	Machines 1	Х
	82	Machines 2	Х
	83Р	Reserved
	84Р	Reserved
	85Р	Reserved
	86Р	Reserved
	87Р	Reserved
17А		Buildings and machines			Х
17В	88	Production livestock, etc.	Х
17С	89	Repayments	Х
18		Taxable profit (row 3 minus row 16)			Х
18А		Non-processed agricultural sales			Х
18В		Processed agricultural sales			Х
18С		Work and service for other firms			Х
18D		Income from non-agricultural activity			Х
19		Turnover (row 3 + row 4 - row 16 - row 17)			Х
19A	90	Profit of the farm members		Х
	91	Cash by beginning	Х
	92	Cash by end (negative)	Х
	93	Bank by beginning	Х
	94	Bank by end (negative)	Х
	95	From private means	Х
	96	To private consumption	Х
	97	Paid VAT and special tax	Х
	98Р	Reserved
	99	Regulation of non-cash figures		Х
	(110)	Calculated VAT (to Cash Balance control)			*
	(111)	Calculated Special tax (to Cash Balance control)			*
	(112)	Cash Balance control (should be zero)			Х
	(113)	Non-cash Balance control (should be zero)			Х
	(114)	Calculated agricultural income tax			*

Notes

This material is adapted from the booklet "Regnskabsføring i landbrugsvirksomheder", published by Danish Radio 1975. It is intended to instructing in farmers' accounts in Russia. The purpose is to give inspiration and understanding of Danish farmers' accounts - it is not a final precept for Russian accounts. Chapter seven on the Russian Tax Account is entirely a proposal at my own expense.

Illustrations by J. Skjødsholm , translation to Russian by Natacha Grigoriyeva.

Smolensk, June 1995

Ebbe Munk