RUSSIA ENTERS 1998 WITHOUT A BUDGET.

The Duma’s failure to approve the government’s draft budget before the end of the year means that, under Russian law, the government will have to set monthly spending for the first quarter of 1998 at the same (low) level as actual spending in the first quarter of 1997.

Over the past week, the Duma did pass most of the government’s tax proposals — introducing, for example, a 1 percent tax on rubles being exchanged for hard currency — but it rejected one of the most important measures, a proposed new 3 to 5 percent national sales tax. This tax would have been levied in shops, in contrast to the current value-added-tax, which is collected from manufacturers, and would probably have been harder to evade. Duma deputies considered the tax an unfair attack on consumer pocketbooks. (Kommersant-daily, December 23)

At the meeting of the government’s economic reform commission on December 20, First Deputy Prime Minister Anatoly Chubais proposed radical measures to tackle the yawning budget deficit. He noted that 31,000 enterprises and establishments, as well as shares in 4,866 joint stock companies, remain state property. He proposed a mass sell-off of these state shares in 1998 to generate cash, and to enable the state to concentrate on more effectively exercising its ownership rights over firms in which it has a majority stake. (Kommersant-daily, 24 December)

Presidential adviser Aleksandr Livshits was rebuffed by Chubais at the December 23 meeting. (Moscow Times, December 23) Livshits suggested a completely new approach was needed to the problem of tax collection in order to break out of the trap of tax avoidance and barter trade which has become entrenched in the economy. He proposed abolishing the rule under which all funds being paid to a firm in tax arrears must be transferred into a single bank account, from which they are paid straight into the treasury. He also suggested canceling Finance Ministry rules which penalize firms that sell goods at a discount, a practice which the Finance Ministry bureaucrats regard as tax evasion. Livshits unsuccessfully argued that such stringent rules leave managers no choice but to go off the books.

Russia: Provincial Crime Journal.