As of 1 January 2011, however, these contributions will increase to 26%, 5.1% and 2.9% respectively, raising the total social security tax burden for employers to 34% overall.
The insurance contributions will be levied on sums over RUB 415,000 a year, rather than on the entire salary, and the base level for contributions will be indexed annually in line with average pay.
The government reduced corporate profit tax from 24% to 20% in November 2008, and decided not to increase salary taxes until 2011, as an economic stimulus measure. However, the new insurance contribution system will have a considerable impact on medium-sized and large companies. The business community has lobbied for the insurance contribution increase to be compensated by a VAT rate cut, but these attempts have been unsuccessful so far.
The tax burden in Russia is effectively carried by businesses rather than individuals. Individual income tax is flat at 13%, one of the lowest in the major economies. In 2011, the level of social security contributions by employers in Russia will overtake that of France, which is currently one of the highest in the world at 30%.
Under the new system, pensioners should receive higher pensions, which will be based on the number of years worked. The average labour pension will be around RUB 8,000 a month by 2010, and the average social pension around RUB 5,000 a month.