Tax incentives for bond-oriented individual investors: evidence from the Russian Federation

Abstract

The paper addresses the specificities of tax incentives in the form of tax reliefs designated for individual investors, who invest in bonds in the Russian Federation. The need for the use of tax incentives to encourage individual investors to purchase bonds is regarded as an integral aspect of the bondization, announced by the Bank of Russia. The objective of this paper is to analyze the specific features of the investment tax relief implementation in the Russian Federation and to reveal issues that remain controversial and require particularization. It was found that stimulation of investment through tax is widely studied by foreign scientists; however, it is almost completely disregarded in Russia. The following tax innovations related to investments of individual Russian investors were analyzed: tax relief for coupon income, derived from corporate bonds; investment tax deductions (individual investment account and long-term capital gains exemption); long-term capital gains exemption for securities of the high-tech (innovation) sector of economy. Reconciliation schemes for the above-mentioned reliefs were identified. Insufficiency of quantitative data for the effectiveness evaluation of tax relief for individual investors was revealed, which was explained by the short validity period of this relief. The authors proved the absence of a uniform system tax relief instruments for individual investors and found that bond holders have more tax relief options, compared to share holders of other investment instruments. In this context, it was proposed to make amendments to the Tax Code of the Russian Federation in order to ensure tax equalization with relation to derivative instruments, designed on the basis of bonds, mutual fund units). In addition, it was recommended to adjust a number of technical aspects, connected with tax relief application and to evaluate the effectiveness of the reliefs under study. Highlights 1. A tendency towards emergence of a tax relief system for individual investors is revealed in the context of the active development of the bond market in the Russian 2. In the Russian Federation, there are a number of tax reliefs for bond holders, including coupon income exemption from tax and investment tax deductions, which are not bound into a uniform system 3. Reconciliation of tax reliefs for individual investors is possible; however, there are issues that remain controversial and require particularization 4. The current tax reliefs for individual investors require improvement. It is important to make certain amendments to the Tax Code of the Russian Federation and evaluate the effectiveness of tax reliefs For citation Belomyttseva O. S., Grinkevich L. S., Grinkevich A. M., Bobek S., Tominc P. Tax incentives for bond-oriented individual investors: evidence from the Russian Federation. Journal of Tax Reform, 2018, vol. 4, no. 2, pp. 108–124. DOI: 10.15826/jtr.2018.4.2.047 Article info Received June 6, 2018; accepted July 12, 2018