Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency
The subject actualized in the article is the need to develop an evaluation methodology of the tax expenditures efficiency as well as tax incentives efficiency for the purpose of tax accounting and optimization. The basic structure of taxes and the normative structure of taxes are distinguished in th...
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irk-123456789-640202015-02-23T16:43:49Z Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency Mayburov, I.A. Leontyeva, Y.V. Macroeconomic and regional problems of industrial development The subject actualized in the article is the need to develop an evaluation methodology of the tax expenditures efficiency as well as tax incentives efficiency for the purpose of tax accounting and optimization. The basic structure of taxes and the normative structure of taxes are distinguished in the article. The basic structure of taxes did not originally contain any advantages for certain activities or groups of taxpayers, representing some ideal theoretical tax construction. As a normative structure of Russian income authors consider taxation in various degrees (different rates applied) of different types of income, and the taxation of one part of the total income according to the model Schantz-Haig-Simons. The authors propose an algorithm for tax expenditures estimating. A method of tax expenditures estimation according to the analyzed tax incentive for the estimated period is proposed. The initial requirements for assessing the tax incentives efficiency are formulated. It is proposed to distinguish between four types of effects (fiscal, social, economic, budget, and ecological) and the same types of efficiency.The ways to calculate these types of efficiency are suggested. Fiscal efficiency of tax incentive is the ratio of the fiscal effect of the provision of incentives received in the period t, when a real effect from the action of the incentives appears to the tax expenditures in the same period t. Social efficiency of the tax incentive is the ratio of the social impact of the provi- sion of incentives received in the period t, when the real effect of the action of this incentive appears to the amount of tax expenditures over the same period. The economic efficiency of the tax incentives is the ratio the economic effect from the provision of incen-tives received in the period t, when the real effect of the action of this incentive appears to the sum of tax expenditures of the same period t. The need for using the budget efficiency of the tax incentives as an integral index is proved. Budgetary effect of tax incentives may be represented as the sum of the fiscal, social and economic effects Актуалізується необхідність розробки методології оцінки податкових витрат і ефективності податкових пільг для реалізації завдання їх обліку й оптимізації. Розмежовуються базова і нормативна структури податків. Пропонується алгоритм оцінки податкових витрат, а також спосіб оцінки податкових витрат з аналізованої пільги за період. Формулюються початкові вимоги до оцінки ефективності податкових пільг. Аргументується необхідність використання як інтегрального показника бюджетної ефективності податкової пільги. Актуализируется необходимость разработки методологии оценки налоговых расходов и эффективности налоговых льгот для реализациизадачи их учета и оптимизации. Разграничиваются базовая и нормативная структуры налогов. Предлагается алгоритм оценки налоговых расходов, а также способ оценки налоговых расходов по анализируемой льготе за период. Формулируются исходные требования к оценке эффективности налоговых льгот. Аргументируется необходимость использования в качестве интегрального показателя бюджетную эффективность налоговой льготы. 2014 Article Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency / I.A. Mayburov, Y.V. Leontyeva // Економіка промисловості. — 2014. — № 1 (65). — С. 5-16. — Бібліогр.: 23 назв. — англ. 1562-109Х http://dspace.nbuv.gov.ua/handle/123456789/64020 336.22+336.5(470) en Економіка промисловості Інститут економіки промисловості НАН України |
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Macroeconomic and regional problems of industrial development Macroeconomic and regional problems of industrial development |
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Macroeconomic and regional problems of industrial development Macroeconomic and regional problems of industrial development Mayburov, I.A. Leontyeva, Y.V. Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency Економіка промисловості |
| description |
The subject actualized in the article is the need to develop an evaluation methodology of the tax expenditures efficiency as well as tax incentives efficiency for the purpose of tax accounting and optimization. The basic structure of taxes and the normative structure of taxes are distinguished in the article. The basic structure of taxes did not originally contain any advantages for certain activities or groups of taxpayers, representing some ideal theoretical tax construction. As a normative structure of Russian income authors consider taxation in various degrees (different rates applied) of different types of income, and the taxation of one part of the total income according to the model Schantz-Haig-Simons. The authors propose an algorithm for tax expenditures estimating. A method of tax expenditures estimation according to the analyzed tax incentive for the estimated period is proposed. The initial requirements for assessing the tax incentives efficiency are formulated. It is proposed to distinguish between four types of effects (fiscal, social, economic, budget, and ecological) and the same types of efficiency.The ways to calculate these types of efficiency are suggested. Fiscal efficiency of tax incentive is the ratio of the fiscal effect of the provision of incentives received in the period t, when a real effect from the action of the incentives appears to the tax expenditures in the same period t. Social efficiency of the tax incentive is the ratio of the social impact of the provi- sion of incentives received in the period t, when the real effect of the action of this incentive appears to the amount of tax expenditures over the same period. The economic efficiency of the tax incentives is the ratio the economic effect from the provision of incen-tives received in the period t, when the real effect of the action of this incentive appears to the sum of tax expenditures of the same period t. The need for using the budget efficiency of the tax incentives as an integral index is proved. Budgetary effect of tax incentives may be represented as the sum of the fiscal, social and economic effects |
| format |
Article |
| author |
Mayburov, I.A. Leontyeva, Y.V. |
| author_facet |
Mayburov, I.A. Leontyeva, Y.V. |
| author_sort |
Mayburov, I.A. |
| title |
Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency |
| title_short |
Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency |
| title_full |
Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency |
| title_fullStr |
Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency |
| title_full_unstemmed |
Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency |
| title_sort |
implementation of the concept of tax expenditures in the russian federation: the evaluation methodology of effects and efficiency |
| publisher |
Інститут економіки промисловості НАН України |
| publishDate |
2014 |
| topic_facet |
Macroeconomic and regional problems of industrial development |
| url |
http://dspace.nbuv.gov.ua/handle/123456789/64020 |
| citation_txt |
Implementation of the concept of tax expenditures in the Russian Federation: the evaluation methodology of effects and efficiency / I.A. Mayburov, Y.V. Leontyeva // Економіка промисловості. — 2014. — № 1 (65). — С. 5-16. — Бібліогр.: 23 назв. — англ. |
| series |
Економіка промисловості |
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2025-07-05T14:46:20Z |
| last_indexed |
2025-07-05T14:46:20Z |
| _version_ |
1836818661308891136 |
| fulltext |
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 5
2014, № 1 (65)
UDC 336.22+336.5(470) Igor Anatoljevich Mayburov,
Doctor of Economics, professor,
Yulia Vladimirovna Leontyeva,
associated professor
Ural Federal University named after the first President of Russia
B.N. Yeltsin, Ekaterinburg, Russian Federation
IMPLEMENTATION OF THE CONCEPT OF TAX EXPENDITURES
IN THE RUSSIAN FEDERATION: THE EVALUATION
METHODOLOGY OF EFFECTS AND EFFICIENCY
Relevance of research topic is due to the
ability to use tax incentives as a tool of industri-
al policy, for example, supporting of priority
sectors and activities. Despite the distortions that
tax incentives introduced in the market resource
distribution mechanism, tax incentives can be
used as tool for achieving industrial policy. In
this case, the government consciously relies on
the generation of distortions in the market re-
source distribution mechanism, because the
government is interested in increasing of re-
sources flow in the industry, which get tax in-
centives [1].
In the Russian Federation, the concept of
tax expenditures in practice has not been ap-
plied. Tax incentives are always available in
Russia for an indefinite period and without eval-
uation of the relevant expenditures. Also, the
effects appearing from the provision of certain
tax incentives have never been evaluated quanti-
tatively. The efficiency of tax incentives has not
been evaluated also. As a result, the number of
tax incentives in Russia increases every year,
but the government and society do not have any
exact data on the budget losses related to the
provision of tax incentives.
A budget formalization of these processes
in line with the generally accepted concept of
tax expenditures has been long overdue. But just
two years ago a difficult task regarding the op-
timization of tax incentives has been set for the
first time before the Ministry of Finance in the
government document "Guidelines for the tax
policy of the Russian Federation for 2012 and
the planning period of 2013-2014" [6]. In par-
ticular, it is necessary to develop a practice of
impact assessment of the tax incentives that
would allow to make decisions about their re-
newal or termination, as well as a system of es-
timating the loss of fiscal revenues resulting
from tax incentives for the purpose of their ac-
counting as a tax budget expenditure in the
budgets planning processes and budgets perfor-
mance reports. In this case, the task is accompa-
nied by a target setting of the Russian Govern-
ment that in the medium term a draft budget law
for the next year at all levels of state power and
local self-government has to be accompanied by
a report indicating budget "tax expenditure" and
their efficiency.
Taking into account that this problem in
our country (and in general in the former Soviet
Union) has not been worked out either in theory
or in practice, the possibility of any objective
assessment of all tax expenditures and evalua-
tion of the efficiency of all tax incentives within
the time frame specified seems to be unrealistic.
And this complex (which requires appropriate
analysis and evaluation) is significant, if we un-
derstand privileges in a broader context as any
tax incentive mechanisms. According to prelim-
inary estimates of the Ministry of Finance, the
total number of tax incentive mechanisms (privi-
leges and exemptions) amounts to 191 points, 60
of them – regarding the income tax on profits,
80 – regarding the value-added tax, 20 – regard-
ing the property tax, 16 – regarding the land tax,
12 – regarding the income tax on mineral extrac-
tion and 3 – regarding the fees for the use of
fauna and water biological resources.
© I.А. Mayburov, Yu.V. Leontyeva, 2014
MACROECONOMIC AND REGIONAL PROBLEMS
OF INDUSTRIAL DEVELOPMENT
–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
6 ISSN 1562-109X
2014, № 1 (65)
Significant impediments to the solution of
this problem in Russia are, firstly, the methodo-
logical vacuum in the identification and evalua-
tion of tax expenditures, as well as in evaluating
the effects and efficiency of the use of different-
directed tax incentives, and secondly, the lack of
an organizational system, which would monitor
and assess these indicators. In fact, even the fol-
lowing question has not yet been answered: who
and how will be solving this task?
In this article authors will try to identify
some methodological solutions for the task of
estimation of tax expenditures and the efficiency
of tax incentives in Russia, apart from the orga-
nizational and technical aspects of the problem.
As known, tax incentives are not the ideal
instrument of state regulation and stimulation of
priority processes. Significant use of tax benefits
leads to a lower neutrality of the tax system, in-
creases the cost of tax administration, and as a
result - reduces the efficiency of the tax system,
differentiates the tax burden between different
industries and categories of taxpayers, and there-
fore, reduces the system's fairness and compli-
cates the construction of taxes and the system in
general. An alternative tool is the direct gov-
ernment financing (subsidies, grants, loans),
which often demonstrates greater flexibility and
stimulation targeting.
The competition between the instruments
of tax and fiscal stimulation is obvious. It makes
it necessary to give preference to one or another
instrument. But this choice has to be made not
on the basis of theoretical reasoning and qualita-
tive assumptions, as it is being done in Russia
now, but it has to be made on the basis of com-
parative analysis of the alternative instruments
efficiency and quantitative estimations (and not
only direct estimations, but also side-effects). It
should be noted that in Russia the use of fiscal
stimulation instruments has long been accompa-
nied by more or less effective control of their
expenditure and evaluation of the efficiency of
their use. The use of tax incentives is burdened
only by the tax authorities' control procedures,
quantification of tax expenditures and evaluation
of their performance in Russia, unlike most de-
veloped countries, is still not being carried out.
The basis for the solution of these prob-
lems in Russia should be made up from the
works of the founders of the assessment practic-
es of the tax expenditures in the United States
[18, 11, 19, 14, 13, 22, 20, 7, and others). The
studies of the best practices of tax expenditures
assessment in the United States and OECD
countries are also extremely important [10, 17,
9, 15].
A methodological approach to the as-
sessment of tax expenditures and evaluation of
the efficiency of their implementation in Russia
will then be proposed. However, together with
that we want to emphasize that the originality of
the approach is related only to the methods of
costs and efficiency estimation. The essence of
the approach is based on the famous "concept of
tax expenditures" [18]. The positive practice of
using this concept in the USA and OECD coun-
tries during 40 years confirms the need to follow
the developing economies in line with this con-
cept.
In general, the assessment of the costs and
the assessment of their efficiency are the two
independent and large-scale problems, but they
are consistently connected: the second problem
cannot be solved without the first. In addition,
these two problems have different scales of solu-
tion. They are necessary for assessment of tax
expenditures and their efficiency in the whole
country, and also for estimation by industry,
regions, and municipalities, as well for estima-
tion of each of tax incentives (or type of tax ex-
penditures). Together with this the solution of
the first as well as of the second problem is con-
nected with some issues that are not solved even
by those countries that have been practicing the
concept of tax expenditures for a long time, not
to mention those who have recently joined or are
only going to join the process.
It is necessary to make another note on
better understanding of tax expenditures.
The founder of the concept of tax expend-
itures S. Surrey argued that any tax is made up
of two elements (parts). The first part is the
structural norm, which is necessary for the nor-
mal functioning of the tax. The second part are
the norms introducing special incentives. He
wrote that "these provisions, often called tax
incentives and tax subsidies represent deviations
from the normal tax structure and are designed
for particular industries, activities or groups of
taxpayers. They take many forms, such as per-
manent exclusion from taxable income, deduc-
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 7
2014, № 1 (65)
tions, deferred tax liabilities, tax credits and spe-
cial tax rates. Whatever form they take, these
deviations from the normative tax structure are
the government expenditures on exempt activi-
ties or groups of taxpayers and made through the
tax system rather than through direct expendi-
tures, loans, or other forms of state assistance
[18, 19].
As known, there are many definitions of
tax expenditures - almost every country has its
own. T. Malinina has conducted scrupulous
analysis of these definitions (we do not repeat it)
and identified four distinctive characteristics [3].
Tax expenditures are:
loss of tax revenue, so they lead to lower
budget revenues;
appear from the tax incentives and ex-
emptions relative to the base (normative) tax
structure;
used for the realization of the goals of na-
tional social and economic policy;
an alternative to direct government ex-
penditures.
In our opinion the first two features are
seen as really necessary to identify tax expendi-
tures, and the other two are redundant. But it
takes one more - an additional feature - creation
of any advantages for certain activities or groups
of taxpayers. This is a very important feature,
because it allows considering the basic structure
of taxes as one that did not originally contain
any advantages for certain activities or groups of
taxpayers, representing some ideal theoretical
tax construction.
However, the OECD [10] recommends
distinguishing between the basic and normative
tax structure. If the basic structure of taxes
should demonstrate uniqueness and universality
for the different countries, the normative struc-
ture of taxes should reflect the national identity
of the tax, i.e. those rules which are recognized
as essential parts of the considered tax in the
country, although those rules are not established
in the framework of the basic structure. And,
accordingly, these rules cannot be considered as
tax expenditures in this country. This distinction
is a very important and promising feature of the
process of adaptation of the basic theoretical
structure of taxes to the existing national prac-
tice of their application, and as a result – of a
more precise definition of the standard against
which national identification of tax expenditures
and a more precise calculation is made.
For example, the basic structure of the in-
come tax, as it is known, is considered to be the
comprehensive income Schanz-Haig-Simons
model. At least, S. Surrey insisted on it. This
model provides for taxation of the difference
between revenues and expenses incurred from
obtaining these revenues. However, this model
provides for taxation in equal measure of all in-
come from all sources: salary, income from
business activities, capital income (dividends,
interest, rents), inheritance, gift, transfers from
the budget (pensions and social assistance), im-
puted rent for the use of your own home, goods
produced and consumed in the household or
your own company, and other income. Such a
model of the tax is unlikely to be administered
in practice.
As a normative structure of Russian in-
come we can consider taxation in various de-
grees (different rates applied) of different types
of income, and the taxation of one part of the
total income according to the model Schantz-
Haig-Simons [1, 2, 4]. In particular, the taxation
of the following is excluded from full income:
the imputed rent for the use of own housing,
goods produced and consumed in a household or
a private firm. Thus most often only those parts
of income are excluded, which are almost im-
possible to administer. Accordingly, if the nor-
mative structure of tax (and not the base tax
structure) is used as a standard these deviations
should not be treated as tax expenditures (incen-
tives). Thus, we offer the following definitions.
The basic tax structure is a set of structur-
al elements (rules), that provides a such tax con-
struction, which does not produce any benefits
for certain activities or groups of taxpayers.
The normative tax structure is a set of
structural elements (rules) and deviations from
them, that provides a tax structure that is
adapted to the practical implementation in the
current national tax administration system and
thus is most relevant to the principle of minimiz-
ing the administrative costs.
Tax expenditures are losses of tax reve-
nues of the budget system connected with the
application by the legislation of various devia-
tions from the normative tax structure, which in
–––––––––––––––––––––––––– Економіка промисловості Economy of Industry ––––––––––––––––––––––––––
8 ISSN 1562-109X
2014, № 1 (65)
this case provide some benefits to certain types
of activities or groups of taxpayers.
Evaluation of tax expenditures
Thus, assessment of tax expenditures in
Russia should be made for a separate article (tax
incentives), for a particular tax, by type of tax,
for all taxes and fees. A sequence of estimations
of tax expenditures for a specific tax is given
below. This assessment should include several
successive operations:
first, the development of the normative
structure of the tax in the context of all its major
elements (of taxpayers, the object of taxation,
tax base, tax rate, the tax period, the order and
timing of payment)
secondly, completing a list of deviations
from the normative structure of the tax (that
deviations thus will be the types of tax expendi-
tures);
thirdly, the development of a method of
quantitative assessment of tax expenditures and
the way of their assessment on practice;
fourth, the preparation of the statisticaly
quantifiable indicators, which are necessary for
quantitative assessment by the selected method
and way;
fifthly, an assessment of tax expenditures
on this tax.
Overall assessment of tax expenditures
will be the result of adding quantitative estima-
tions of these expenditures for the full range of
Russian taxes and fees.
As to the choice of the estimation method
of tax expenditures, the OECD Review of the
best practices (Best, 2004) suggests the possible
use of three methods.
1. Assessment of tax expenses based on
income loss. This method involves the assess-
ment of tax expenditures as the amount of tax
revenue that the budget system will not receive
as a result of (or loses as a result of the action)
of any incentives.
2. Assessment of tax expenditures based
on reduced income. This method involves the
assessment of tax expenditures as the amount of
tax revenue that the budget system can receive
as an additional result of the proposed cancella-
tion of incentives. It provides a fairly complex
accounting of economic agents behavioral ef-
fects due to the abolition of incentives.
3. Assessment of tax expenditures based
on equivalent costs. This method involves the
assessment of tax expenditures as the sum of the
direct costs of the budget, which must be paid to
all taxpayers who use incentives so that their
total income would be the same as when using
this incentive.
Most practical relevance is the method of
income loss. According to experts [20], it is the
most simple and reliable method. A practical
way of calculating the tax cost of this method is
reduced to the following steps. To assess the
existing incentives one should consider the dif-
ference between the amount of tax that would
have been obtained in the absence of the ana-
lyzed tax incentives, and the actual amount of
the tax, which comes to the budget system in
terms of the incentives.
Evaluation of annual tax expenditures
based on the analyzed incentives
The formula for this calculation will be
the following:
/ ,t i i i i
w iTE TI TI ICTA ICTH
where i – year, of the given incentives' intro-
duction;
tTE – tax expenditures i-th year;
/
i
w iTI – the sum of tax revenue from tax-
payers using this incentive, calculated in the ab-
sence of incentive in i-year (if data are used by
i-1, they need correction and reduction to the
i-th year);
iTI – the sum of tax revenue from tax-
payers using this incentive, calculated in terms
of providing incentives in the i-th year;
iICTA – the increasing of the tax admin-
istration costs due to additional costs of adminis-
tering state incentive in the i-th year;
iICTH – the increasing of the tax har-
monization costs due to additional costs for the
use of taxpayers' incentives in the i-th year.
Evaluation of tax expenditures for the
period analyzed incentive
For the purpose of tax incentive efficiency
evaluating the tax expenditures should be eva-
luated not for one year but for period from its
establishment to the display of effect - t. Then
all parameters are summarized by year. In addi-
tion, for comparability they are brought to the
–––––––––––––––––––––– Економіка промисловості Экономика промышленности ––––––––––––––––––––––
ISSN 1562-109X 9
2014, № 1 (65)
same point in time by discounting. The simpli-
fied formula would look like:
/
1 1 1 1 1
,
t t t t t
t i i i i
w i
i i i i i
TE TI TI ICTA ICTH
where t – the period of time from the estab-
lishment to the end of the display of effect of
this incentive;
1
t
t
i
TE
– tax expenditures of the period t;
/
1
t
i
w i
i
TI
– the sum of tax revenue from
taxpayers using this incentive, calculated in the
absence of incentive of the period t;
1
t
i
i
TI
– the sum of tax revenue from
taxpayers using this incentive, calculated in
terms of providing incentives of the period t;
1
t
i
i
ICTA
– the increase of the tax ad-
ministration costs due to additional costs of ad-
ministering state incentive of the period t;
1
t
i
i
ICTH
– the increase of the tax har-
monization costs due to additional costs for the
use of taxpayers' incentives of the period t.
Taking into account the time lag of the in-
centive action and the costs of tax administration
increases the accuracy of the estimation. But
even taxation expenditures calculated by such a
complicated way will be not exact. The main
sources of these errors are:
this method takes into account only the
primary effects of tax incentives, it is not possi-
ble to take into account its secondary effects on
changes in the tax base, in particular, due to
changes in the behavior of recipients of incen-
tives;
enability of accurate determination of the
amount of the tax that the state loses by giving
exemptions to taxpayers, especially if this ex-
emption is valid for a long time;
the complexity of an accurate assessment
of time t can lead to using as a time t the period
of incentives exemption or any extended period
( 5-6 years), when the effect of benefits must
clearly appear. All these assumptions will re-
duce the accuracy of the estimation;
the precise estimation of the increase of
the tax administration costs and tax harmoniza-
tion costs is a costly and difficult task, simpli-
fied procedures will not consider these indica-
tors.
So the simplified formula for calculating
the tax expenditures for the period would have
the form:
/
1 1 1
.
t t t
t i i
w i
i i i
TE TI TI
Initial requirements for assessing the
incentives efficiency
Significant problems arise in formulating
this methodology. Evaluation of tax expendi-
tures has been learned by most developed coun-
tries (this process has been improved there for
decades, especially in the USA), but adequate
assessment of the efficiency of these tax expend-
itures still has not been elaborated. Moreover,
there are opinions that a scientifically based me-
thodology for evaluating the efficiency of incen-
tives is extremely difficult to create. There are
several reasons. Let`s formulate them.
First, during the provision of incentives it
is impossible to predict how the process of its
shifting in each case will end, who will get this
benefit, who will be the final beneficiary of it.
The shifting processes in the taxation are diffi-
cult for studying and exact description in gener-
al. All this applies also to the incentives shifting.
Even a long-term operation of an incentive
sometimes doesn’t allow identifying who is the
final beneficiary, predicting its future behavior
and carrying out its planning. So it is impossible
to plan who would bear the newly introduced
incentives. This problem is not significant for
the tax incentives for individuals (the tax on per-
sonal income, transport and property), as op-
posed to tax incentives from legal entities. For
example, the incentive in form of accelerated
depreciation is given to a particular enterprise.
This company reduces its liability on income
tax, but doesn’t spend its freed funds on pur-
chasing fixed assets, and spend them, for exam-
ple, on increasing the salaries of the employees.
Thus, the final beneficiary of these incentives
suddenly becomes a person to whom this privi-
lege was not intended.
Second, the time lag before the affect ap-
pears after the introduction of appropriate incen-
tives is not certain, which (lag) may be specific
for each incentive, so it is not clear when the
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10 ISSN 1562-109X
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expected effect of incentives will be expe-
rienced. It should be noted that the existence of
a significant time lag between the introduction
of the incentives and the real impact of its ac-
tions is a characteristic feature of this type of
preferences. Identification of the time lag is re-
quired to adequately relate the cost of the rele-
vant tax period (year) to the corresponding ef-
fect (fiscal, economic, social) of the period, in
which the effect becomes visible. Correct time
correlation of tax expenditures and effects is a
necessary requirement (if it comes about an ade-
quate assessment) for an adequate assessment of
incentives.
For example, the investment tax credit is
given for promotional activities of the company
in the years i-th and i +1, respectively. Let’s
suppose that the process of implementing covers
a two-year period of the credit, but a different
kind of effect will occur with different time lags
due to objective time processes. The real expan-
sion of the tax base will start much later - after
commissioning works, approaching to the
planned production capacity, debugging logis-
tics and distribution operations, etc. Thus, in-
crease of the tax revenue actually will start, for
example, in the 4-th year, and the increase of the
living standards of the area will be seen with a
greater lag of 5-6 years. How should we relate
tax expenditures and effects in this case? If one
make all assessments relating to the year of
these costs incurrence, the effect will be nega-
tive as well as efficiency, but if the time lag is
identified correctly, the evaluation of the effi-
ciency and outcome may be fundamentally dif-
ferent. One basic conclusion can be made: effi-
ciency of the tax incentives may be defined only
for a full period t - from its introduction to the
end of the action (although this conclusion can
be also discussed because the effects can also
occur after the application of the incentives).
This requirement will be very important in the
transition to total determining of the period of
the incentives’ action and their effectiveness
evaluation during their limited use period with a
following obligatory examination of their exten-
sion feasibility.
Third, besides identification and account-
ing the time lag under the circumstances of a
significant inflation the problem of the different
cost of tax expenditures and the corresponding
effect (fiscal, economic, social) of the period
arises. It is necessary to reduce the values being
compared to the same period of time by dis-
counting.
Fourth, it is not always clear how much
the resulting effect of the introduction of the
incentives will be free of influence from the ac-
tions of others (objective and subjective) factors
that lead to the formation of the same effect,
regardless of the application of the privilege.
Thus it is required to separate the effect of in-
centives from the effect produced by the action
of a general economic process and other eco-
nomic instruments: stimulating (budget subsi-
dies, for example) and other regulatory.
For example, how can we cleanse the ef-
fect of the application of the incentives in the
form of exemption for 3 years from the tax on
property of organizations in relation to the new-
ly commissioned facilities with high energy ef-
ficiency and the effect of the introduction of the
same facilities as a result of the overall scientific
and technological progress and the natural desire
of the company to reduce their costs for electric-
ity. In fact, the approach to such cleansing of the
effect should be a three-step algorithm. In the
first step it requires the initial identification of
the effect of newly high energy efficiency facili-
ties, which is achieved without the action of the
incentives. In the second step - the identification
effect achieved under the same terms but with
using tax incentives. Finally, the third step –
obtaining a purified effect by subtracting from
the effect achieved under conditions of actual
incentives and effect that would be achieved
under the same conditions, but without incen-
tives.
Fifth, it is important to consider the
process of interdependence of some tax bases,
which leads to the fact that the tax incentive for
one can influence the change of revenues for
other taxes to which this incentive was not in-
troduced. Thus, incentives administered by a
specific tax can also affect a different tax due to
the interpenetration of the tax bases. For exam-
ple the tax base for the personal income tax and
social contribution and income tax, business
property tax, and transportation taxes are inter-
dependent. For example, the incentive of the
income tax in the form of accelerated deprecia-
tion reduces not only the income tax in the early
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2014, № 1 (65)
periods of equipment using, but also deform ob-
ligations of the enterprise for the property tax, as
the residual values begin to be measured nonli-
nearly. This process can bring a significant dis-
tortion into the determination of the tax incen-
tives efficiency (monetary, fiscal). Interdepen-
dence of tax bases on the value added tax and
profit is more obvious, so any benefit to the val-
ue added tax will deform the profit obligations
of the enterprise.
The problem of the tax expenditures effi-
ciency measuring requires finding the adequate
indicators of tax incentives. The Russian prac-
tice of assessment is very inferior and methodo-
logically undeveloped. It is formed in a pioneer-
ing manner at the municipality level, and some-
times – at the level of the subjects of the Russian
Federation. In this case, regional and local prac-
tice of incentives assessment is based on a "ran-
dom walk". After analyzing more than 20 of
these techniques, one can make the following
conclusions, which are not comforting.
1. There are no typical methods. Every
municipality is developing their own indicators
and way of incentives selection for their use.
2. In general fiscal and social efficiency
indicators are measured, the first - quantitative-
ly, the second - qualitatively.
3. Efficiency evaluation is often replaced
with the estimation of annual effect as some
gross indicator, for example, the tax base in-
crease as a result of the incentives.
4. These techniques do not consider any
of the above requirements for assessing the effi-
ciency.
The essence of the proposed approach
It is offered to evaluate the efficiency of
tax incentives proceeding from the definition of
the economic, social, fiscal and budgetary effi-
ciency. It is important to understand that calcu-
lations for different types of efficiency of the
aggregate activity of tax incentives are not very
needed (except to prove the efficiency of tax
incentives as a whole). It is important to eva-
luate the efficiency of every specific incentive,
in some cases – of a group of incentives that
focus on recurrent or unidirectional effects. Also
we do not take into account factors of taxes
shifting, but it is offered to consider the time lag
of the incentives, inflation, the process of the tax
bases interaction, as well as the presence of oth-
er factors that influence the receipt of this effect.
In addition, it is important to understand
that during the introduction of incentives all
kinds of effects should not become apparent.
They will still appear, but their value and even
the direction is different. And we cannot claim
only the positive evaluations of the effects of
any specific incentives (excluding the effect on
the budget). Therefore, different effects should
be considered, because the objectives of each
different incentive are different, so the situation
when the incentives achieve just one or two
kinds of effect including a budgetary one is
normal. This incentive shall be considered effec-
tive. We want to offer an original methodologi-
cal approach to the definition of the relevant
types of effects and the efficiency of tax incen-
tives.
The fiscal impact of the tax incentives
should be a subsequent increase in tax revenues
over the current tax expenses. Increase in tax
revenues is the difference between the sum of
tax revenue from a number of interdependent
taxes, which is calculated in terms of incentives
submitted in the period when a real effect from
the action of the incentives takes place, and the
sum of tax revenues in the absence of incentives
in a period of the same duration before their in-
troduction. All indicators are considered for the
period t, they should be discounted to the same
period of time. If the desired value is positive
and exceeds the sum of tax expenditures (i.e.,
the budget revenues exceed the expenditures on
incentives provision - the loss of the budget), the
provision of this incentive has a fiscal effect,
otherwise – no:
1
;
t
t t
i
FE TE
/
1 1
,
t t
t i i
w i
i i
FE TI TI
where tFE – fiscal effect of tax incentives;
t – the period of time from the introduc-
tion to the end of action of the effect of this in-
centive;
/
1
t
i
w i
i
TI
– the sum of tax revenue from
taxpayers using this incentive, calculated in the
absence of incentives over the period t;
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12 ISSN 1562-109X
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1
t
i
i
TI
– the sum of tax revenue from tax-
payers using this incentive, calculated in terms
when incentives are provided over the period t.
Fiscal efficiency of tax incentive is the ra-
tio of the fiscal effect of the provision of incen-
tives received in the period t, when a real effect
from the action of the incentives appears to the
tax expenditures in the same period t
/
1 1
1 1
,
t t
i i
w i
i i
fiscal t t
i i
i i
TI TI
FEEf
TE TE
where fiscalEf – fiscal efficiency of the tax in-
centive;
1
t
t
i
TE
– tax expenditures on this incen-
tive of the period t.
If Ef fiscal < 1, then the analyzed tax incen-
tives are inefficient. If Ef fiscal = 1, then increase
of taxes incomes is equal to tax expenditures,
so this incentives is fiscally neutral. And if
Ef fiscal > 1, an increase of taxes incomes exceeds
tax expenditures and the incentive is fiscally
efficient.
Social impact of the tax incentives is to be
seen in the increase of the standard of living of
the population, the preservation and develop-
ment of socially significant spheres of activity,
the formation of favorable living conditions for
vulnerable categories of the population, preserv-
ing and creating jobs. The demonstration of this
effect for the area is clear, but it precise quanti-
fication is difficult. There are two main reasons
for this.
First, it is necessary to separate this effect
from the overall natural background of increas-
ing living standards and improving social well-
being of the population area, which is difficult to
do, because in this area several companies may
exist (and benefits they receive, of course, can
be different) that form this effect. But the main
analyzed error causes the possibility of achiev-
ing this effect by the means of the social pro-
gram financed by the budget system.
Secondly, there is no single indicator of
the population social well-being of a territory,
increase of which over the natural level could be
evaluated in relation to the social effect of the
action of any additional stimulus in the area. Of
course, there are integral factors of the United
Nations (UN) like "index of quality of life" and
"human development index", but they are sup-
ported only in the cross-country dimension.
These indicators are not calculated by the statis-
tical authorities of the municipality and the re-
gion. Here it is necessary to use a range of well-
known indicators of the population life quality
of the area interactively.
Thus, the accurate calculation of the so-
cial impact is difficult. For some incentives
purely focused on production, this effect will be
almost absent (for example, exemption from the
value added tax on the importing to the Russian
territory of process equipment analogues which
are not produced in Russia is not accompanied
by any noticeable social impact). In this case,
the social effect of such incentives will be zero.
For an approximate estimation of the socially
orientated incentives we can offer two ap-
proaches.
The 1st basic approach. If for the social
orientation incentives it is possible to set appro-
priate territorial social indicators (for example,
giving tax preferences on disabled persons labor
will be well correlated with indicators of dis-
abled persons employment and wages levels of
persons with disabilities), then the analyzed ef-
fect of social incentives should be assessed in
relation to the dynamics of cost estimations of
these parameters. This dynamic will adequately
reflect the effect of the tax incentives under the
terms of constant budget financing of relevant
social programs. If a significant change in the
budget financing takes place it is necessary to
carry out appropriate correction of the increase
of indicators. As a result, the social effect can be
represented as a result of the excess of social
indicators in terms of providing incentives for
the period t over the corresponding indicators in
its absence. The social effect will take place un-
der the condition that the occurred difference
exceeds the amount of tax expenses over the
period:
1
t
t
i
Se TE
.
If a positive difference is absent the budg-
et will benefit from achieving this effect using
the money that must come in the form of tax
when the tax incentive is absent.
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ISSN 1562-109X 13
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/
1 1
,
t t
t t
l w il
i i
Se SI SI
where Se – social impact of the tax incentives;
1
t
t
l
t
SI
– total cost estimations of social
indicators, calculated in terms when incentives
are provided for the period of t years;
t – the period of time from the introduc-
tion to the end of the action of the effect of this
incentive;
/
1
t
t
w l
t
SI
– total cost estimates of social in-
dicators, calculated in terms of absence of the
incentive for the period of t years.
The 2nd auxiliary approach. When a
strict correspondence between social indicators
and social orientation incentives is difficult to
define (in particular, when the dynamics of so-
cial indicators determines the unidirectional ef-
fect of not one but several benefits) it is neces-
sary to calculate the social effect for several in-
centives, and then divide it by the number of
incentives that form it.
/
1 1 ,
t t
t t
l w l
i i
SI SI
Se
n
where n – number of incentives forming the
social effect.
Social efficiency of the tax incentive is the
ratio of the social impact of the provision of in-
centives received in the period t, when the real
effect of the action of this incentive appears to
the amount of tax expenditures over the same
period t.
/
1 1
.
1 1
,
t t
t t
l w l
i i
soc t tt t
i i
SI SI
SeEf
TE TE
where .socEf – social efficiency of tax incentive;
1
tt
i
TE
– tax expenditures over the peri-
od t.
If Ef soc < 1, then analyzed tax incentives
are socially inefficient. If Ef soc = 1, so this in-
centive is socially neutral. And if Ef soc > 1,
the increase of social indicators exceeds tax
expenditures and the incentive is socially effi-
cient.
The economic effect of the tax incentives
becomes evident in the form of growing finan-
cial resources of the taxpayer that are at his dis-
posal due to the absence of the need to transfer
the funds to the state budget in the form of taxes.
This can significantly improve the financial
condition of the enterprise, by giving it a higher
paying ability and liquidity to solve the prob-
lems of rapid modernization of fixed assets, to
increase profits, etc. The effect can be seen in
the outperformance of fixed investment, in ex-
pansion and upgrading of production and tech-
nology in order to increase the volumes of pro-
duction of competitive products and create new
jobs (including upgraded) and in the profits in-
crease.
The economic effect is increasing of the
following economic indicators taxpayers who
use this incentive over current tax expenditures
for this incentive. It is proposed to use the
amount of working capital as a result economic
indicator. This indicator is supported by the state
statistics and called "organizations turnover".
The organizations turnover include the cost of
shipped goods of own production, works and
services performed in-house, as well as revenue
from the sale of previously acquired on the side
of the goods (excluding VAT, excise duties and
similar payments).
The excess of this indicator is understood
as the difference between the sum of enterprises
sales, calculated in terms of providing incentives
to the period of appearance of the real effect of
the action of the incentives, and the sum of or-
ganizations sales in the absence of incentives in
a period of the same duration before its intro-
duction. All indicators are calculated for the pe-
riod t, thus they should be discounted to a single
period of time. If the desired value is positive
and exceeds the sum of tax expenditures, the
provision of this incentive has an economic ef-
fect, otherwise – no:
1
t
t
i
Ee TE
.
/
1 1
,
tt t
t t
l w l
i i
Ee OT OT
where Ee – economic effect of the tax benefits;
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14 ISSN 1562-109X
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1
t
t
l
t
OT
– turnover of organizations using
this incentive, calculated in terms of providing
benefits for the period of time of t years;
t – the period of time from the introduc-
tion to the end of the action of the effect of this
incentive;
/
1
t
t
w l
i
OT
– Turnover of organizations us-
ing this incentive, calculated in the absence of
incentives for the period of time of t years.
The economic efficiency of the tax incen-
tives is the ratio the economic effect from the
provision of incentives received in the period t,
when the real effect of the action of this incen-
tive appears to the sum of tax expenditures of
the same period t.
/
1 1
1 1
,
t t
t t
l w l
i i
econ t tt t
i i
OT OT
EeEf
TE TE
where econEf – economic efficiency of the tax
incentives;
1
tt
i
TE
– tax expenditures on this incen-
tive of the period t.
If Ef econ < 1, then the analyzed tax incen-
tives are economically inefficient. If Ef econ = 1,
then the increase of economic indicators is equal
to tax expenditures, so this incentive is econom-
ically neutral. And if Ef econ > 1, the increase of
economic indicators exceeds the tax expendi-
tures and the incentive is economically efficient.
Budgetary effect of tax incentives is evi-
dent not only in the future increase in budget
revenues generated through the expansion of the
tax base as a result of the incentive, but also in a
saving of the budget funds spent previously on
solving social and economic problems that due
to the exemption companies have to solve them-
selves. Thus as a result of the incentives there
are additional budget funds that can be spent on
the most territories of the country. These addi-
tional budget money is a result of the increase in
tax revenue, i.e. budget revenues and budget
savings during the realization of some socio-
economic tasks, i.e. expenditures.
Part of the budgetary effect consists of an
increase of tax receipts, i.e. budget revenue is a
fiscal effect. If the budget savings are consi-
dered from the standpoint of alternative costs,
i.e. consider budget subsidies granted by the
budget of businesses in the absence of incentives
to address certain socio-economic problems,
then this economy can be regarded as the ap-
proximation of the sum of social and economic
effects. As a result, it can be said that the budget
effect includes three previously presented effects
of the individual terms, and the budgetary effect
is a kind of integral index, which must be posi-
tive. We offer the following approach to the de-
finition of budgetary effect.
Budgetary effect of tax incentives may be
represented as the sum of the fiscal, social and
economic effects, and if any of these effects is
negative, it will decrease the budgetary effect.
However, the most important characteristics of
budgetary effect should be a comparison of the
sum of all growth indicators (income tax, social
indicators, organizations turnover) obtained dur-
ing the period t, when the real effect of the ac-
tion of this incentives takes place with the
amount of tax expenditures for the same period
t. In our opinion, we should not calculate the
arithmetic average of these effects, they need to
be just summarized.
So, if the sum of these effects exceeds tax
expenditures, the budgetary effect is present, if
less - no. Incentive will be effective if the bud-
getary effect exceeds the effect of tax expendi-
tures
1
t
t
i
Be TE
/
1 1
/ /
1 1 1 1
,
t t
t t
l w l
i i
t t t t
t t t t
l w l l w l
i i i i
Be Fe Se Ee TI TI
SI SI OT OT
where Be – budgetary effect of tax incentives.
Budget efficiency of tax incentive is the
ratio of the sums of fiscal, social and economic
effects from granting the incentives received in
the period t, when the real effect of the action
appears to the tax expenditures of the same pe-
riod t. Again, the specific nature of the integral
indicator is that we are not dealing with the
arithmetic average of the three types of efficien-
cies, we relate to the sum of the effects from tax
expenditures.
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ISSN 1562-109X 15
2014, № 1 (65)
/ / /
1 1 1 1 1 1
1 1 1
,
t t t t t t
t t t t t t
l w l l w l l w l
i i i i i i
bud t t tt tt
i i i
TI TI SI SI OT OT
Be Fe Se EeEf
TE TE TE
where budEf – budget efficiency of the tax incen-
tive.
If Ef bud < 1, then analyzed tax incentives
are budgetary inefficient. If Ef bud = 1, then the
increase of all indicators is equal to tax expendi-
tures, so this incentive is budgetary neutral. And
if Ef bud > 1, the increase of all indicators ex-
ceeds tax expenditures and the incentive is bud-
getary efficient.
The allocation of the environmental ef-
fects is the controversial question. On the one
hand, the process of active development of envi-
ronmental taxation in all countries indicates that
it is necessary to allocate, as well as, the search-
ing of adequate tax incentives for reproduction
of environmentally oriented behavior of taxpay-
ers. On the other hand, complex quantitative
estimate of this effect can be done only in pers-
pective but not in the nearest future.
But it should be noted that the allocation
of environmental effects is necessary, it requires
by realities. Contents of environmental impact
should be reflected in reduced damage to the
environment and human health. In our opinion,
the evaluation of this effect should be made on
two parameters. There are amounts of avoided
environmental damage and improvement of
health of population.
In conclusion it should be noted that each
of the indicators of the tax incentives efficiency
(fiscal, social, economic) can serve as a criterion
by which one can estimate the efficiency (or
inefficiency) of any incentives. The presence of
even one type of the effect, i.e. exceeding of the
increase of any type of indicators over tax ex-
penditures (i.e. a positive effect) allows us to
assume that this exemption is effective. But only
the budget efficiency can be the integral index,
as it accumulates the three other efficiencies.
When one of the effects from the incentives can
be seen clearly, this incentive has to be consi-
dered effective. In this case we have a positive
effect, for example, the fiscal or social. It is like-
ly that the budgetary effect would be positive
also. Much more complicated is the case with
incentives having an impact on several areas of
activity. In this case, each of the effects (fiscal,
social, economic) may not be as great and may
seem vague. And the individual growth of all
kinds of indicators will not exceed the tax ex-
penditures, but in the aggregate the value of the
total increase of these parameters may exceed
the tax expenditures. Therefore, this exemption
should also be considered effective.
Thus, the indicator of fiscal efficiency has to
make sense as the final criterion indicator, bas-
ing on the positive value of which the efficiency
of the relevant incentives is stated.
Directions for further research. To find
a successful solution to the problem stated by
the Russian Government it is necessary first of
all to work out theoretically the full range of
problems associated with the use of tax incen-
tives in Russia:
to form a new understanding of the tax in-
centives;
to develop a normative structure for all
taxes;
to identify the whole range of deviations
from the normative structure as tax expendi-
tures;
to develop a qualimetry methodology for
these tax expenditures;
to develop a methodology of efficiency
assession assessment of the tax expenditure im-
plementation;
to develop new approaches to a statistical
state-supported indicators and statistic reports.
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