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The Russian Federal Tax Service (FNS) has only limited ability to monitor individual accounts. Access to Russians’ bank accounts will enable the tax authorities to improve tax collection and reduce the shadow economy.

The FNS is said to have proposed changes to the Russian Tax Code which would permit it to access all banking transactions of Russian citizens. Later, however, the regulator denied this initiative; still, there is no smoke without fire. Let’s see why the Russian tax service might need this tool and when implications the new legislation, if any, might have for ordinary people.

Rumor has it that the proposed initiative – which was never published – boils down to giving tax authorities access to the bank accounts of any Russian citizen. How is that different from the current situation? Now, tax authorities may only get such access after their formal audit is authorized, either remote or on-site, although on-site audits of individuals are a rarity. Besides, financial monitoring bodies conduct automatic mandatory supervision of any transactions in excess of RUB 600,000.

Thus, current laws significantly limit the FNS’s powers to check individuals’ compliance with the tax laws. Officially, fiscal bodies never have sufficient information about the activities of individuals not registered as individual entrepreneurs. The alleged initiative aims at removing these limitations.


First of all, the fiscal authorities intend to fight illegal entrepreneurship. The need to regulate the segment of self-employed individuals has been widely promoted at the legislative level in the last three years. Russian fiscal bodies propose to introduce a category of self-employed individuals – those who earn their living by providing services to individuals for personal needs, but, for some reasons, are not willing to register as an individual entrepreneur. Apparently, a carrot and stick approach is at play here, with screening of all accounts being a stick, and simplified procedure for income declaration as compared with individual entrepreneurs as a carrot being offered to Russians.

Secondly, the government wants to increase its tax revenues from individuals. Today the individual income tax is one of the largest contributors to the government’s revenues. Fiscal bodies are convinced that the new law, when enacted, will improve tax collection and put pressure on the shadow segment of the Russian economy. Screening will make it easier to detect individuals who regularly receive undeclared income in cashless form (for example, in the form of rent).

Thirdly, let’s not forget about the PR effects of such rumors. It is no secret that the Russian government in the past laid the groundwork for new legislation: the proposed draft is usually the strictest version of the initiative, while the law that passes in the third reading in the State Duma is much more liberal.

In any case, if the alleged initiative is to become law, it will lead to a much higher number of screenings. It is yet to be seen, though, whether this law will actually improve the collection of individual income tax.

Under the current law, more precisely according to Article 217 of the Russian Tax Code, cash gifts to individuals are tax exempt. This means that tax authorities will have to prove, in relation to each individual, that each receipt is not a gift. This approach may entail higher expenses for banks and more staff for the FNS.


The new legislation is unlikely to affect routine transfers, for example, among family members, but may, indeed, cause certain inconvenience to individuals who regularly receive cash in their bank accounts.

In such cases, tax authorities will authorize audits and will request recipients to disclose the source of income. As experience shows, it is quite easy for tax bodies to distinguish between income earned by self-employed persons and gifts exchanged between individuals. In other words, don’t think you can fool the FNS.

On another note, the FNS’s initiative looks like an attempt to pilot-run already existing and pretty effective mechanisms of monitoring sham companies with respect to VAT, just this time in the sphere of personal income tax. The rationale is that the mechanism that proves to be effective in one sphere may be applied to similar situations.

Still, what is the point of screening all bank payments, if the most suspicious payments will be made in cash anyway? Maybe, the regulator’s objective is to further support its quest against cash payments.

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Nadezhda Rodichkina