‘No wonder that they got to the rental market’

Will the Ministry of Construction’s project on the registration of rental deals replenish the treasury with tens of billions of rubles or take the market to the shadow?

The Ministry of Construction’s initiative to prepare a bill obliging Russians to keep accounts for leasing flats, apartments and garages via a state app has caused an unclear outcry. The authors want to design a fine — 5,000 rubles for natural persons and 50,000 rubles for legal entities — for the violation. What is this proposal in fact? Can the desire disguised as clean-up of the market replenish the country’s budget? Realnoe Vremya’s columnist, economist with long-term banking experience Artur Safiulin offers to learn the details of the bill.

The essence of the proposal

Lawmakers are offering to create a special state information system (SIS). A leaseholder must add data on the duration of the agreement and the amount of rent to SIS within 30 days after the signing. The payments will be made in this system too.

The bill was sent to ministries and agencies in early November to prepare for its adoption in the State Duma next spring. The project started to be developed this August on the Russian president’s instructions. The country’s Ministry of Construction will become the operator of the system.

The creation and further use will be financed via Dom.RF. The total budget for the development will be 1,2 billion rubles, plus 200 million rubles will be annually allocated for maintenance and improvement. The scale of the system is conditioned by the size of the segment of rented flats and apartments — 6,9 households in Russia, or 11% of the total number.

According to the authors of the project, current online house rental platforms will continue operating. The question is how our citizens will be inclined to hide information about the rental and the rent. The answer is the obligation of leaseholders, that’s to say, users of services, to add the information.

Fines will become a stimulus for leaseholders. The Code of Administrative Offences will be added amendments including fines for those who will keep accounts outside SIS. For natural persons, from 500 to 2,500 rubles, for legal entities, from 5,000 to 10,000 rubles. A refusal to publish information in SIS or its distortion will cause stricter punishment — from 3,000 to 5,000 rubles for citizens and from 30,000 to 50,000 rubles for organisations.

Why this is done and what prospects the project has

It is no secret that house rental is beyond the Tax Service’s control, in fact, it is an illegal zone. Experts calculate that the budget falls short of some 162 billion rubles of taxes, which are possible in this activity.

The All-Russian Public Opinion Research Centre says 250 million square metres of housing, or 7% of the housing market, are on lease in Russia. 95% of lessors are natural persons who got a flat within privatisation or bought it as an investment. Of course, a handful wants to declare the rental income. Moreover, it is very hard to control. As a consequence, we have low tax collection from rental market players.

But the first steps have already been made here, and they are underpinned by administrative fines. The Russian Ministry of Construction forecasts that the creation of SIS will allow additionally collecting 62,8 billion rubles in 2023-2025.

The initiators of the project think that the system will also allow leaseholders to check the lessors’ good faith. Even without registration, users will see information about good faith (cheating leaseholders, tax evasion and so on). Jurists assume that such a practice is spread in many countries of the world where even rental agreements for less than a year are registered. An explanatory note of the draft reads that the main goal of the future SIS is to clean up the market and protect leaseholders’ interests.

On the other hand, the project hasn’t been openly discussed with anybody, there haven’t been consultations with businesses. Such practice has already been trendy in our government when decisions are made unilaterally. Because the creation of the single operator monopolises the market and will favour the departure of a lot of current players from the market despite the Construction Ministry’s assurances.

There is sense for the leaseholder in using SIS, moreover, a fine can be imposed if they are caught. I think the introduction of mandatory registration will facilitate the growth of the illegal rental market. Our people like to risk and disobey laws. Moreover, it is physically impossible to track all rented flats and their owners. 13% income tax is at stake, so this is a “good” stimulus to risk. Lessors will reduce the prices a bit coming with lessees into an agreement. Intermediary agencies that will help people register agreements in SIS for a fee will appear in the market.

It is an interesting fact that when paying for the rent via the information system the lessee will pay a fee to the platform’s operator, to the bank or another provider. The fee hasn’t yet been fixed, but this makes one think that we are dealing with someone’s business project that is beautifully wrapped up as “clean-up” and “putting the chaotic rental market in order.”

Tax deduction from the rental is necessary

In conclusion, I would like to note that the project in general is within the policy of nationalisation of all economic spheres. It is no wonder that they got to the rental market. This sector has always been in the shadow, and the state simply had no time to reach it. Total digitalisation now allows creating systems that can withstand loads and give a result. The threat of big fines will force market players to use the system.

Together with the introduction of SIS, they could also think about the introduction of tax deduction the size of the rent and reducing the state fee for registering long-term rental deals. These measures will allow stimulating the development of the rental market and motivate lessees to sign legal deals.

For 40% of the Russians, a home purchase is financially unavailable now even with a low mortgage rate. A long-term rental could be a solution to the problem — rent tax deduction will reduce the rent by 13%, permit making the rental a more population solution to the housing problem, raising the transparency of the market in general the initiators of the SIS project advocate.

Artur Safiulin

The author’s opinion does not necessarily coincide with the position of Realnoe Vremya’s editorial board.