* Medvedev says property tax change possible * Russian MPs urge Medvedev to tax the rich * Medvedev rules out radical changes in tax system
By Gleb Bryanski
MOSCOW, May 5 (Reuters) - Russia, which faces a budget deficit for at least three years and is scrambling for cash to finance bloated social programmes, should consider a property tax change, President Dmitry Medvedev said on Tuesday.
Russia taxes property based on its nominal value which is far exceeded by market value, following years of real estate boom. The system allowed millions of Russians to own apartments and houses while paying a negligible amount in tax.
"During the crisis we should be careful with taxes although the property tax is a topic under discussion and an improvement of laws in this area is possible," Medvedev told members of A Just Russia party, which advocates personal tax hikes.
Russia collected only 6.1 billion roubles ($186.1 million) in personal property tax in January-September 2008, according to the latest available data from the Finance Ministry. The entire tax goes to local budgets.
Russia sees a budget deficit at 7.4 percent in 2009 and 5.0 percent in 2010. The country plans to cover the deficit from the $107 billion Reserve Fund it had saved during the boom years and which is expected to last until end-2010.
Russia also plans a Eurobond issue next year.
Russia's policy of reliance on relatively high corporate taxes while keeping personal taxes low has resulted in 0.8 percent of Russians receiving 30 percent of all personal income, according to a recent study by the Russian Economic School.
PARASITICAL CONSUMPTION
Corporate taxes, such as the mineral extraction tax, value added tax (VAT) and profit tax account for over 70 percent of all of Russia's tax revenues but the government is under strong pressure from business lobbies to cut VAT.
Medvedev said cutting VAT was not on the table for now. Such a cut would boost the economy but ruin the budget while the idea to shift the tax burden to the rich may bring some cash to the budget as well as political dividends.
"We should fight the crisis at the expense of the rich and accumulated state savings, not at the expense of small businesses and the poor," Oksana Dmitriyeva, an MP from A Just Russia, told Reuters after meeting Medvedev.
Other proposals from A Just Russia, which holds 38 seats in the lower house of parliament, include a progressive income tax rate, luxury tax and a higher social security tax which should also apply to executive bonuses.
"We should reduce parasitical consumption by the rich," Dmitriyeva said.
Medvedev, who is due to address the government on the 2010 budget at the end of May, echoed the proposal of Prime Minister Vladimir Putin, who suggested last week that existing land tax and property tax should be replaced by a single real estate tax.
REPLENISH COFFERS
Putin proposed to introduce from 2011 a differentiated tax rate for the single tax, aiming to tax the owners of luxury real estate at the highest rate while providing tax benefits for poorer real estate owners.
The increased tax revenues will replenish the coffers of local budgets, severely hit by Russia's worst economic downturn in a decade.
The land tax made up 10.2 percent of all local tax revenues while personal property tax made up just over one percent. This compares to a 67.5 percent share from personal income tax, currently collected at a flat rate of 13 percent.
Critics say the new real estate tax will require a costly and lengthy overhaul of all Russian real estate while valuation judgments will breed corruption. Attempts to increase the tax burden on the population during the oil boom years had failed.
Medvedev ruled out radical changes in Russia's tax system, saying those who argue in favour of sweeping tax cuts should try to be in his shoes. "Let them first run the country, then we will see." (Reporting by Gleb Bryanski; editing by Stephen Nisbet)