The Cornerstone of the Tax System: The Introduction of an Income Tax in the Russian Empire

Abstract

In the early twentieth century, the Russian Empire was one of the few European countries where there was no income tax; at the same time, during periods of acute deficit, the government considered the possibility of transition to income taxation and even developed various bills. However, as they were reluctant to deprive the nobility of their privileges and thus strengthen the position of the commercial and industrial strata of society, the idea remained unfulfilled. The article focuses on the main projects for the imposition of an income tax in Russia from 1892 (the most well-developed project in the nineteenth century) to 1916 (the one adopted for implementation). The article analyses the historical conditions behind the drafting of the bills, viewpoints on the innovations expressed in the government, the economic efficiency of the innovations, and the results of the discussions. Of special interest are the discussions which took place in the State Council at special meetings devoted to the implementation of the tax, because it transpires that the Ministry of Finance was one of the few liberal agencies consistently advocating for the transition to progressive income taxation. The same views were held by the legal departments of the Ministry of Finance, i. e. the treasury chamber and tax inspectorates. Other agencies emphasised the irrelevance, complexity, and deficiency of income tax. An income tax was introduced not as the main tax in the fiscal system but as an additional one to existing direct and indirect taxes, which caused various controversies. From the point of view of economic efficiency, the expected income from the introduction of the tax was so insignificant that it devalued the idea of its implementation. ‘The law on the introduction of an income tax’ adopted in 1916 was perceived by society as a great achievement, but it is scarcely possible to talk about its impact on the state budget because of the events of 1917.