Tax Cashback and Personal Income Tax Deductions: Potential for Alleviating Inequality and Decreasing Poverty

The relevance of this research arises from the current Personal Income Tax (NDFL) deduction system’s potential to decrease its positive effects and increase its negative effects on inequality and poverty. This study’s subject is the social and standard NDFL deductions and tax cashback (social family payments). The research aims to provide evidence supporting the potential of tax cashback, social, and standard NDFL deductions to gap inequality and poverty in Russia. The research results revealed that deductions for property and investments, unavailable to the poor, constitute the majority (around 60%) of personal income tax deductions. This shows they have no effect (with a potential to become negative) on inequality and poverty. This paper scientifically evaluates the tax cashback program, intended to compensate for the limitations of NDFL deductions. It also explores ways to enhance the program to lessen inequality and poverty. The author points out that the tax cashback program’s benefits are its specific focus (aimed at low-income families with multiple children), its lack of disincentive for work, and its encouragement of declared income. One downside is that the NDFL rate jumps from 6% to 13% at certain income levels. Fraudulent divorces and registrations are a concern in areas with higher subsistence minimums, and the process is reactive rather than proactive. The conclusion is that a reduction in these risks will lead to the greatest potential impact of the tax cashback program on decreasing poverty and inequality in Russia.

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