The Ministry of Finance of Russia weighs tax changes on income from long-term deposits
The Ministry of Finance of the Russian Federation has proposed eliminating the personal tax on income earned from long-term bank deposits. Deputy Chairman Nikolai Zhuravlev argues that removing this tax would encourage people to invest for longer periods. The proposal, reported by the newspaper News, remains under discussion and has not yet become law.
In discussions involving the Ministry of Finance and banks, a plan to abolish the tax was advanced in September. While the idea has broad support, a final decision is still pending. At present, long-term deposits are less common in Russia, partly due to the high key rate. In many developed countries, deposits with long maturities regularly exceed 10 percent of retail savings, whereas Russia has a much smaller share, under 3 percent.
2023 marked the first year when citizens faced the tax on interest income from deposits again. The taxes were formalized at the start of 2021, but President Vladimir Putin granted a temporary exemption from the levy in late March 2022. The tax rules then came back into force, with exemptions tied to certain thresholds and annual calculations.
To calculate the tax-free portion of income, one method is to multiply 1 million rubles by the maximum key rate recorded in the year when the interest was earned. In 2023, the annual peak rate occurred in December, when the first-day rate reached 15 percent. This implies a tax-free cap of 150 thousand rubles for that year. Analysts like Vladimir Chernov of Freedom Finance Global estimate that several deposits may exceed 1.67 million rubles and become taxable based on average rates, though these figures are subject to ongoing data processing by the Federal Tax Service as reported to Izvestia. The agency has not yet released an estimate of total revenue from the tax on deposit interest.
In September 2023, a similar suggestion reappeared within the framework of the Budget and Tax Policy guidelines. The proposal calls for calculating tax on interest from long-term deposits not only for the year of receipt but also for all subsequent accrued years. This approach is being explored as part of the legislation under consideration by the ministry. The press service noted that the bill would introduce these extensions gradually as it moves through the legislative process.
Experts explain that the ministry envisions recognizing a minimum non-taxable amount for long-term deposits for each year, not just the year of receipt. Vladimir Saskov from the Institute of Tax Management and Real Estate Economics and the Director of the School of Economics for the Tax Consultants Association outline that this change could reduce the tax burden for many Russians, aligning net returns more closely with the actual income generated by longer-term savings.
Bank of Russia data for January through September 2023 show a rise in cash demand, followed by renewed liquidity in the banking system toward the third decade of that year. Regulators connected this shift to the attractiveness of deposits amid rising interest rates. As the year ended, market participants noted another uptick in cash demand ahead of the New Year, reflecting cautious consumer behavior and the evolving deposit landscape.
Overall, officials and economists emphasize that these debates reflect a broader trend: balancing tax policy with incentives for long-term savings, while considering the impact on government revenues and financial stability. The discussion continues as policymakers weigh the potential effects on households, banks, and the overall economy. Mishustin has cautioned against overly optimistic expectations during the debate, underscoring the need for careful analysis and conservative projections in any reform plan.