Debts owed in taxes are being eliminated without any intervention required
In a significant shift in tax collection practices, a bill allowing for the direct, out-of-court collection of tax debts from individuals without prior court approval has passed its first reading in Russia's State Duma and been refined and approved by the government. If adopted, this bill is set to come into force on November 1, 2025.
Currently, recovering tax debts from individuals in Russia goes through the courts, amounting to approximately 4.5 million cases per year and a total sum of around 20 billion rubles. Under the new draft law, the Federal Tax Service would be authorised to collect tax debts directly from individuals who fail to pay or formally contest their tax bills within one month. This process would start with automatic withdrawals from the debtor's bank accounts, and if there are insufficient funds, bailiffs could seize property.
The proposed changes mark a stark contrast to the current judicial procedure, as most tax cases proceed without hearings and almost always result in judgments favouring the tax authority. These judgments are then enforced by bailiffs. However, under the new bill, disputes should only occur when the tax authority's and taxpayer's positions conflict.
The shift towards an administrative, out-of-court collection system for individuals mirrors current practices for businesses. This change is aimed at boosting state revenues amid a widening budget deficit and declining tax receipts, by reducing reliance on slower court procedures and enhancing the efficiency and speed of tax debt collection. This could lead to increased and more predictable tax revenue inflows for the Russian budget.
However, the new method could potentially increase the pressure on individual taxpayers, with faster and more direct enforcement of tax debts without court involvement. The risk of automatic bank account withdrawals and property seizures may lead to sudden financial hardship. Debtors retain the right to contest debts but must do so within one month to trigger a court hearing, which may limit their time to respond or prepare a defense.
Experts recommend setting up notifications from the Gosuslugi portal for tax-related updates to stay informed about any changes in the debt collection process. If there's no money in the accounts and the debtor has no official income, the tax authority will begin a judicial procedure for recovery - through bailiffs.
It is important to note that certain social benefits are exempt from enforcement, and there are nuances that differentiate individuals from legal entities in this process. If there are no objections within a month, the bank will withdraw the money from the debtor's account, either all at once or in installments. The new order will not freeze citizens' bank accounts.
The debate on out-of-court enforcement has been ongoing for over a decade, starting in 2009. The bill is scheduled for its second reading in the near future. This initiative is not new, as a similar algorithm is already in place for legal entities and individual entrepreneurs.
[1] Source: TASS News Agency [3] Source: Russian Ministry of Finance
- The proposed changes in Russia's tax collection practices will grant the Federal Tax Service the authority to directly collect tax debts from businesses, similar to their current approach with individual entrepreneurs, in an attempt to boost state revenues.
- Under the new draft law, businesses that fail to pay or dispute their tax bills within one month will face automatic bank account withdrawals or property seizures, reflecting the administrative, out-of-court collection system that is now being extended to individual taxpayers.
