TAX DEBT AND WAYS OF REDUCING IT
M.E. Orlova
Kazan Federal University, Institute of Management, Economics and Finance,
Kazan, Russia
V.I. Nasyrova
Kazan Federal University, Institute of Management, Economics and Finance,
Kazan, Russia
S.V. Salmina
Kazan Federal University, Institute of Management, Economics and Finance,
Kazan, Russia
E-mail: 104@mail.ru
Recepción: 05/08/2019 Aceptación: 20/09/2019 Publicación: 23/10/2019
Citación sugerida:
Orlova, M.E., Nasyrova, V.I. y Salmina, S.V. (2019). Tax debt and ways of reducing it. 3C
TIC. Cuadernos de desarrollo aplicados a las TIC. Edición Especial, Octubre 2019, 330-345. doi:
https://doi.org/10.17993/3ctic.2019.83-2.330-345
Suggested citation:
Orlova, M.E., Nasyrova, V.I. & Salmina, S.V. (2019). Tax debt and ways of reducing it.
3C TIC. Cuadernos de desarrollo aplicados a las TIC. Special Issue, October 2019, 330-345. doi:
https://doi.org/10.17993/3ctic.2019.83-2.330-345
3C TIC. Cuadernos de desarrollo aplicados a las TIC. ISSN: 2254-6529
332
ABSTRACT
The article discusses scientic and legal approaches to the classication of tax
debt, analyzes the state of tax debt in Russia for the period from 2013 to 2018.
The main causes of tax debt are the deterioration of the nancial condition
of an economic entity, an individual, as a result of the nancial crisis in the
country, or deliberate evasion of the payment of mandatory payments by the
taxpayer himself. Among the factors aecting the increase in tax debt, should
be highlighted, the use of such schemes to avoid tax debt as reorganization,
liquidation, merger, merger, division, separation. In the context of various
classication groups, proposes new classication groups of tax arrears, incl. to
expand its analysis and administration. The article claries the concepts of tax
debt, settled and unregulated tax debt for the purposes of tax administration and
conducting analytical work. The directions for the development of tax debt tax
administration are proposed. For tax administration purposes would be to use
the tax debt classication by type of organizations-debtors, including by type
of economic activity. This will improve the performance of the tax authorities
to collect tax debts. It seems appropriate to develop a program of actions for
administering dierent types of taxpayers and collecting tax arrears, and in the
future, it is possible to prevent the occurrence of tax arrears.
KEYWORDS
Arrears, Tax debt, Bankruptcy, Unresolved debts, Tax audit, Tax control
measures.
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1. INTRODUCTION
The tax code of the Russian Federation does not give a legal interpretation of the
term “tax debt”, but oers only the concept of arrears, as the amount of tax or
fee not paid in the period established by the legislation on taxes and fees (Article
11 of the RF Tax Code), which entails the accrual of penalties. This aected
the availability of a variety of interpretations of this category by scientists and
practitioners. Tax debt is the most important subject of tax administration, since
it is a signicant destabilizing economic component that aects the formation
of state nancial resources. Tax debt is the most important subject of tax
administration, since it is a signicant destabilizing economic component that
aects the formation of state nancial resources.
2. METHODOLOGY
In conducting the study, the methods of comparison and generalization, methods
of statistical analysis and methods of analogy for determining risks were used.
3. RESULTS AND DISCUSSION
To indicate unfullled obligations, “debt” is used in many ways. The Tax Code
of the Russian Federation contains only a denition of arrears as the amount of
tax or fee that was not paid within the time period established by the legislation
on taxes and fees (Article 11 of the Tax Code of the Russian Federation). The
term “debt” is used in the Tax Code of the Russian Federation both in respect
of taxes and fees, and in respect of nes and penalties without any explanation.
In explanatory dictionaries Ozhegova (1986) and Ushakov (1935), in the Modern
Economic Dictionary (Raizberg et al., 1999), debt is the sum of outstanding
obligations to be repaid by a business entity within a certain period of time. It is
worth noting that the concept of “debt” is used by the legislative authorities, the
executive authorities, lawyers, economists, scientists and others. The concept of
“tax debt” is presented in the works of many scientists (Picture 1).
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From the above denitions, the authors draw attention to the fact that the tax
debt consists of unpaid taxes, nes and penalties. So, such authors as Aushev
(2004), Bondar (2011) tax liabilities are unfullled tax liabilities, including nes
and penalties. Isaev (2000), Lebedev (1998) Also, tax arrears include unpaid taxes
and fees, nes and penalties that the tax authorities accrued. The most complete
denition is given by Pronin (2016), which is clearly seen in Picture 1.
In our opinion, at present, tax arrears include unfullled obligations on taxes,
fees, insurance premiums, penalties accrued on them and nes for violating the
legislation on taxes and fees. We propose to consolidate the concept of “tax debt”
in the Tax Code of the Russian Federation, which is understood as the aggregate
of unfullled taxpayers, tax agents, payers of fees and insurance premiums in
the period established by tax legislation for the payment of taxes, fees, insurance
premiums, as well as accrued fees and penalties sanctions on them.
Picture 1. The denition of the concept of “tax debt” proposed by different authors.
Based on the norms of the Tax Code of the Russian Federation, we can identify
two main groups of tax debts: current tax debts and tax debts identied in the
framework of tax audits (Picture 2).
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In turn, within each group there are three types of tax arrears: arrears (current,
arising from the results of tax declaration and accrued according to the calculations
of the tax authority; arrears identied as a result of tax audits); arrears of interest
accrued as a result of the current arrears; arrears of penalties for current arrears
and the results of tax audits; tax arrears accrued as a result of tax audits; tax
arrears due as a result of other tax control measures. It should be noted that the
current and identied arrears in the process of tax audits have various nancial
implications. So if there is a current debt, the nancial consequence is a penalty,
or according to the interpretation of the Tax Code of the Russian Federation,
the method of security for tax payment (Article 75 of the Tax Code). If there
are arrears identied by the tax authorities based on the results of tax audits, in
addition to the penalty, the tax consequence may be a nancial consequence.
This fact is part of the tax oense.
Types of tax debt
Current tax debt
Arrears - no tax liability
Debt of penalties for
violation of terms of tax
payment
Debt of accrued tax
sanctions
Tax arrears revealed in the
framework of tax audits
Arrears - tax offense
Debt of penalties for violation
of terms of tax payment
Debt of accrued tax sanctions
Picture 2. Types of tax debt (Ofcial site of the Federal Tax Service of Russia).
Picture 3 shows the dynamics of tax debt in the context of arrears, penalties and
tax sanctions. At the end of 2017, the arrears of interest were 22%, and the tax
sanctions - 2.6%. There has been an increase in arrears and a reduction in tax
arrears and penalties.
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Arrears
Penalties Tax returns
2014
430,3
259,6
76,4
461,6
230,2
66,6
269,1
78,9
28,4
24,9
2015
2016
2017
2018
614,9
815,4
599,6
237,8
167,1
Compiled based on the statements of the Federal Tax Service of Russia (Ofcial site of the Federal
Tax Service of Russia).
Picture 3. Dynamics and composition of tax debt as of 01.01.2019.
The main causes of tax debt are the deterioration of the nancial condition
of an economic entity, an individual, as a result of the nancial crisis in the
country, or deliberate evasion of the payment of mandatory payments by the
taxpayer himself. Among the factors aecting the increase in tax debt, should
be highlighted, the use of such schemes to avoid tax debt as reorganization,
liquidation, merger, merger, division, separation. A legal entity created by
merging with another organization, or reorganized, will not pay anything to the
budget, since it will subsequently be liquidated or there will be another way to get
rid of it, for example, through another reorganization.
Another reason for the growth of tax debt is the imperfection of the institution
of bankruptcy. Most of the enterprises and organizations undergoing bankruptcy
proceedings have a signicant tax payment debt. At the same time, the
implementation of the norms of insolvency (bankruptcy) legislation is the last
opportunity for the tax authorities to recover the arrears in payments to the
budget and extra-budgetary funds. However, in practice, the bankruptcy process
is the least eective measure to recover (repay) tax debt.
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Signicant problems exist in the joint work of the tax authorities and the
Federal Baili Service to execute decisions to collect tax arrears at the expense
of the debtor’s property, and more specically, the inability to repay the debt
at the expense of liquid assets during the implementation of the enforcement
proceedings.
These tax debt problems are not new to tax administration, but eective methods
to combat this problem are not enough for today. As practice shows, even if the
tax authorities manage to bring the case to court and prove the fact of intentional
liquidation, it is practically impossible to collect the debt from the debtor.
Tax debt should be considered as a total tax debt, which consists of settled debt
and unresolved debt. Debt settlement includes deferrals and installment plans for
the payment of tax payments by the decision of tax authorities, courts, as well
as the suspension of penalties until a decision is made by an arbitration court.
Unsettled debts include arrears, impossible to collect debts. Tax arrears, fees
and insurance premiums aect the revenues of the consolidated budget of the
Russian Federation and can lead to a signicant reduction in budget expenditures
on the most signicant projects and programs.
The tax authorities in the framework of statistical reporting distinguish two main
types of tax debt: unresolved and settled (see Picture 4).
Types of
Tax debt
Unregulated
Regulated
Arrears
Hopeless to
recovery
restructured
Suspended to
recovery
Deferred
(installments)
By the
tribunal's
decision
By decision
of the tax
authority
Picture 4. The treatment of types of tax arrears from the point of view of the Federal Tax Service.
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Unsettled debts include arrears and debts uncollectible. The arrears include the
amounts of taxes that have not been paid within the prescribed period, in respect
of which the terms of application of measures of collection and settlement are
valid. The peculiarity of bad debts lies in the fact that they are not subject to
collection, restructuring or rescheduling. Bad debts are not subject to regulation
due to certain circumstances, such as the death of the taxpayer, the impossibility of
establishing its actual location, registration of the taxpayer on forged documents,
liquidation in bankruptcy, etc.
Regulated debt, as a rule, is a debt, according to which a certain decision is
made on postponement of payments, in particular on restructuring, deferral,
installments, investment tax credit, as well as payments suspended for collection
in connection with the relevant decision of the tax authority or entered into force
of a judicial act. The settlement of the settled debt is made by phased payment
in accordance with the conditions and procedure approved by the Government
of the Russian Federation, or by an agreement or decision. Figure 6 shows the
dynamics of various types of debt according to the above classication criteria.
In Russia, the indicator is the ratio of the tax debt to the volume of taxes, fees,
insurance contributions to the budget system of the Russian Federation. This
indicator characterizes the eciency of the tax authorities in the settlement of
tax arrears. Picture 5 shows the dynamics of this indicator over 13 years.
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2006
2008
2007
2009
13,9
8,3
7
11,1
9,2
6,9
6,6
6,8
6,3
6
7,2
6,3
4,7
2010
2011
2012
2013
2014
2015
2016
2017
2018
Picture 5. The ratio of the tax debt to the amount of taxes, fees, insurance premiums in the budget
system of the Russian Federation, in %.
In the Russian Federation, there is a tendency to a decrease in the ratio of the tax
debt to the volume of taxes, fees, insurance contributions to the budget system
of the Russian Federation. So, in 2018 compared with 2006, this ratio decreased
by more than 2 times. Also in Figure 2 one can observe a noticeable increase
in the ratio of debt to revenues in 2009 compared with 2008 by 2.1%, and in
2016 compared with 2015 by 1.2%. These phenomena are associated with global
nancial crises. However, it should be noted that the decrease in this indicator
in subsequent years is due to a signicant increase in taxes, fees, insurance
contributions to the budget system of the Russian Federation. Therefore, further
development of measures to reduce tax arrears is necessary.
It should be noted that in Russia as a whole, the tax debt of both individuals and
legal entities increases annually, although as of January 1, 2018 compared with
January 1, 2017, this indicator for legal entities decreased by 1.87% (Picture 6).
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Indebtedness
Tax debt of legal entities Tax arrears of individuals
1/01/2016
827300,76
702159,5
125141,26
1/01/2017
1031693,48
841795,92
189897,56
1/01/2018
826040,23
1078861,52
252821,29
1/01/2019
880693,97
726784,06
153909,91
Picture 6. Dynamics of total tax debt in the whole of the Russian Federation.
The total tax debt in Russia increased by 30% in 2017 compared to 2015. The
main reason for the growth of aggregate tax debt is the additional charges on
control work and crisis phenomena in the economy. The largest share in total tax
debt is tax debt of legal entities - more than 75%.
It should be noted that tax audits are not the cause of arrears, but only record
the facts of violation of legislation on taxes and fees, as a result of which tax
arrears of both legal entities and individuals arise. Conducting control measures
in relation to taxpayers by the tax authorities does not always lead to the state
budget receiving the full amount of taxes and fees, as reected in the decision to
prosecute tax violations. Such a result is possible if the organization does not have
at the time of the control measures and after they have completed the property
and current assets for repayment of the sums generated as a result of the audit.
To assess the eectiveness of the tax authorities, including tax control over the
debt, the tax audit performance indicators and the amount of additionally accrued
payments based on the results of tax audits (Table 1) (Orlova & Kashapova, 2018)
are used.
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Table 1. Dynamics of data on the results of tax audits in Russia.
Indications 2015 2016 2017 2018
Cameral tax audit
The number of cameral
tax audits, in units
31 932 225 39 978 278 55 859 670 67 889 196
The number of cameral
tax audits that revealed
violations in units
1 948 540 2 254 497 3 014 277 3 531 037
The effectiveness of
cameral tax audits, in%
6,1 5,6 5,4 5,2
Additionally accrued
payments, in thousand
rubles, of which:
74 233 338 98 491 131 61 559 605 55 659 611
- Taxes 60 003 911 73 020 626 41 812 328 36 678 972
Field Tax audit
Number of eld tax
audits, in units
29 393 24 879 19 391 13 738
The number of eld tax
audits that revealed
violations in units.
29 118 24 670 19 134 13 444
The effectiveness of eld
tax audits, in%
99,1 99,2 98,7 97,9
Additionally accrued
payments, in thousand
rubles, of which:
265 239 993 348 632 418 309 863 053 306 199 093
- Taxes 195 988 031 251 919 710 221 485 332 217 0984 117
The number of o-site tax audits signicantly exceeds the number of on-site tax
audits, respectively, the indicators of additionally accrued payments identied as a
result of on-site tax audits are signicantly higher than during the desk tax audits.
This is due to the fact that the on-site tax audit allows tax authorities to verify
various areas and aspects of taxpayers’ activities. It is necessary to recognize that
when conducting a eld audit, the tax authorities have much more powers than
the oce audit. Upon completion of both the cameral tax audit and the on-site
tax audit, the tax authorities are tasked with collecting the arrears, penalties and
nes for them. But in practice, tax debt collection is not so easy.
4. SUMMARY
Having summarized the opinions of various economists, and, having analyzed
the dynamics and structure of tax debts, we consider it possible to clarify the
denition of tax debts from the point of view of its economic essence. Tax arrears
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can be dened as a set of unfullled obligations to pay the statutory taxes and
fees, accrued penalties for late payment of taxes and fees, and awarded penalties
for violating tax laws expressed in monetary form.
From the point of view of tax administration, it is necessary to clarify the
denition of settled and unregulated tax arrears. Regulated tax debt is a debt
with which the tax authority may conduct administrative measures (settlement
methods), incl. change in the deadlines for the payment of taxes and other
obligations (deferment, installment plan, investment tax credit), procedures of
indisputable and compulsory collection, up to and including the initiation of a
bankruptcy procedure and write-o. Unresolved tax arrears are arrears in respect
of which indisputable penalties have not yet been applied, as well as uncollectible
tax arrears, i.e. one that cannot be recovered due to certain circumstances
and arrears. The proposed denitions of “settled, unresolved” debt should be
consolidated legislatively, it will help to increase the tax discipline of tax payers.
Within the framework of the specics of settled debt, it would be possible to
suggest one more group of tax debts: tax debts, for which reconciliation of
calculations was carried out and tax debts for which this reconciliation was
not performed. In this regard, it is advisable to recommend adjusting the
reconciliation of calculations with the budget at the level of the Tax Code of the
Russian Federation, and not by-laws.
In conclusion, you can reect the general model of tax debt for its various types
(Picture 7).
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Types of tax debt
(as a whole, by economic activity, by type of taxpayer)
current tax debt
tax arrears revealed as a
result of tax audits
arrears arrears
Regulated
by types
Unregulated
by types
Penalties
debt
tax sanctions
debt
Penalties
debt
tax sanctions
debt
Picture 7. Classication of tax debt for tax administration purposes.
Interesting for tax administration purposes would be to use the tax debt
classication by type of organizations-debtors, including by type of economic
activity. This will improve the performance of the tax authorities to collect tax
debts. It seems appropriate to develop a program of actions for administering
dierent types of taxpayers and collecting tax arrears, and in the future, it is
possible to prevent the occurrence of tax arrears.
5. CONCLUSIONS
In order to improve tax legislation and reduce tax debt, contributing to the
development of tax control over debt, you can oer:
• To carry out bankruptcy prevention through the organization of nancial
monitoring of the state of aairs, both in each organization and the industry
as a whole, developing a mechanism for crisis management, closing down
unprotable production and forecasting bankruptcies of insolvent and
unprotable organizations;
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• Tax authorities should be allowed to request documents from both
taxpayers and counterparties outside tax audits in order to monitor the
nancial situation. Diagnosis of bankruptcy and crisis management will
prevent the growing number of bankruptcies, will avoid the liquidation of
many enterprises, which has a great inuence on the level of tax debt in the
Russian Federation as a whole;
• It is necessary to reduce the period of enforcement proceedings by bailis
to 3 months, in order to improve the organization of interaction between
tax authorities and the baili service and full control over the course of
enforcement proceedings by tax authorities. Improving cooperation
with the baili service will reduce the time needed to collect debts in the
framework of enforcement proceedings and pay o taxpayers with debt
from liquid assets in the course of enforcement proceedings.
Thus, the improvement of the mechanisms of tax authorities aimed at identifying
tax debts becomes a very urgent task of tax legislation due to shortcomings that
contribute to the growth of tax debts of both legal entities and individuals.
6. ACKNOWLEDGEMENT
The work is performed according to the Russian Government Program of
Competitive Growth of Kazan Federal University.
7. REFERENCES
Aushev, T. A. (2004). Organizational and Economic Preconditions of Tax Debt and Ways
to Reduce It.
Bondar, O. A. (2011). Cumulative tax liability: prerequisites and problems of its
reduction. Power and Administration in the East of Russia, 1, 55-62.
Isaev, K. K. (2000). Reduction of Tax Payments of Enterprises in the Regional Economy.
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Lebedev, K. N. (1998). The concept, composition and legal regime of accounts
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Ocial site of the Federal Tax Service of Russia. (2019). Statistics and analytics.
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Orlova, M. E., & Kashapova, R. R. (2018). Tax debt and its current status
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Ozhegov, S. I. (1986). Dictionary of Ozhegov. Russian.
Pronin, S. B. (2016). Recovery of tax arrears from organizations. Accountant’s
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Raizberg, B. A., Lozovsky, L. Sh., & Starodubtseva, Ye. B. (1999). Modern
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