Earlier we have already written about the fact that the Accounts Chamber evaluated the special tax regime for professional income tax (PIT). According to its results, the agency prepared a report, which generally positively assessed the regime for the self-employed. However, the document contains recommendations to the Government to amend the terms of its application by authorizing the FTS to track the calculations of such citizens.

Ekaterina Kopylova, Tax Compliance tax consultant, commented on the main initiatives of the agency in the Vedomosti review.

Does the implementation of the NAP regime now need additional control?

According to our expert, there is no special need for it now. The tax authorities have enough tools to detect illegal employment and income, for example:

• The internal screening system of the Federal Tax Service of Russia on illegal employment, which automatically receives information on the frequency and sources of payments, as well as on the relationship between the self-employed, their clients and former employers.
• Interdepartmental commissions to counter illegal employment, ensuring coordination between regional and municipal authorities, the Federal Tax Service, the FIS, the FIS, Rostrud, employment centers, the Ministry of Internal Affairs, the prosecutor's office, trade unions and employers' associations.
• Authority to request bank statements of individuals.

At the same time, there is currently no comprehensive control over the self-employed, their activities and income: they independently indicate their income in the «My Tax» application and pay tax on it.

Probably, the proposals of the Accounts Chamber of Russia may concern strengthening of the Federal Tax Service's control over the payment of personal income tax by the self-employed and compliance with the terms of this preferential regime. However, this is unlikely to bring a significant amount of revenues to the budget and would require diversion of the FTS resources. Therefore, the question of the expediency of tracking the correctness of payment by each self-employed person remains open.

Proposal to authorize the Federal Tax Service to monitor the calculations of the self-employed

It can be assumed that in addition to the correctness of payment of tax on professional income, the changes will also affect insurance contributions and their administration. It should be recalled that so far the payment of insurance contributions by the self-employed is voluntary. It is made to the Social Fund of Russia through the service «Gosudservices» or the application «My Tax». If the payment of insurance premiums will be mandatory for the self-employed, then most likely the authority to administer them will also be transferred to the Federal Tax Service of Russia.

In general, the idea that the Federal Tax Service should act as a controlling body with the relevant powers is logical, since control over the payment of taxes falls within the competence of this specialized service.

It should be noted that the Accounts Chamber's report does not specify which powers are in question. However, there are no restrictions in the legislation on granting the FTS new powers in the area of tax administration. 

Indeed, the FTS of Russia has the technical capability to track and analyze transactions on the accounts of the self-employed, similar to other individuals. The internal system of the Federal Tax Service of Russia shows online the checks of the self-employed and the amounts of payments. The same system automatically identifies the self-employed at risk: those whose payments are periodic, come in the same amounts and from former employers.

How the possible implementation of the Accounts Chamber's proposals may affect the demand for the NAP regime

The proposal of the Accounts Chamber to authorize the Federal Tax Service to exercise control over the calculations of NAP payers only formally reflects the general trend of strengthening control over the self-employed.

However, the proposal does not contain any significant novelty: already now the tax authorities are actively calling the self-employed and their «employers» to commissions to reclassify the relationship as labor, offering to clarify their tax obligations.

In our expert's opinion, strengthening control over the self-employed is unlikely to reduce the demand for the use of this preferential regime. On the contrary, there is now a steady trend to increase the number of self-employed, as citizens want to legalize their income and apply to them a preferential regime that offers legitimate tax savings and a relatively low administrative burden.

Thus, the report and conclusions of the control body only reinforce the general trend towards increased control, as we discussed recently in our podcast.