Publication: Monitor Volume: 4 Issue: 104

The government recognizes that, in the longer term, a radical reform of the tax code is essential to fiscal health. Boris Fedorov, former finance minister who last week took charge of the State Taxation Service with an upgrade to the rank of minister, said the government intends to centralize control over tax collection under a new body, provisionally called the Revenue Ministry. What is really needed, Fedorov acknowledged in an interview with Kommersant-Daily on May 30, is a new tax code to replace the present one, which was adopted in 1991 when Russia was still part of the USSR. Fedorov said that if paying taxes was easier and less expensive, more people would be likely to do it.

Rod McEnzie, a British businessman based in Moscow, told the BBC on May 29 that, under the present system, firms have no choice but to dodge taxes because paying all those currently in force would add up to 110 percent of a company’s income. (BBC, World Business Report, May 29) McEnzie said that going after the big corporate defaulters was easy; what will be difficult will be getting small firms and individuals to declare their incomes. Aleksandr Pochinok, former tax chief sacked last week, said the main problems Fedorov will face as his successor will be the prevalence of barter in the Russian economy and the low wages of tax inspectors. (Russian agencies, May 29) In an interview a year ago, Pochinok complained his inspectors were overworked and under-equipped. Nominally they were earning $100 a month, but some had not been paid for months, he said. (St. Petersburg Times, June 30, 1997)

Fedorov said four million people had submitted income declarations by the official deadline of April 1. This was an improvement on last year, when 3.3 million filed, and on 1996, when the number was 2.8 million, but it is a tiny fraction of a working population not far short of 100 million people. The reason people are not paying is not because they cannot afford to, Fedorov said, pointing out that five million Russians took foreign vacations last year. (Kommersant-Daily, May 30)

Prime Minister Sergei Kirienko has said he hopes the Duma will give final approval to the government’s draft tax code by September. That will enable the government to base the revenue side of the 1999 budget on the new code. On April 15, the Duma approved the new code in outline, but it postponed debate on the detailed sections. The government is not happy with this arrangement, anticipating that the Duma will try to tinker with individual sections of the code and undermine the integrity of the overall plan.