Publication: Fortnight in Review Volume: 8 Issue: 7

March 26 marked the second anniversary of Vladimir Putin’s election as president, and the events of the fortnight only underscored the Jekyll-and-Hyde character of the country’s domestic politics in the Putin era.

On the one hand, the Kremlin’s judicial reform got a boost when the Constitutional Court struck down provisions in the country’s existing Criminal Procedural Code that permitted prosecutors to detain criminal suspects for longer than 48 hours without the permission of a court. While the new Criminal Procedural Code passed by Russia’s parliament late last year transfers the right to issue arrest warrants from prosecutors to the courts, that transfer had been set to take place only at the start of 2004. The Constitutional Court, however, ordered the parliament to change the relevant laws to ensure that court-sanctioned arrests would become obligatory as of July 1 of this year.

Some observers, it is true, warned that the ruling was not a panacea, given that the decrepit court system was bound to be overwhelmed by the new caseload and that overburdened judges would thus be likely simply to rubber-stamp requests from prosecutors for arrest warrants. Still, given the history of prosecutorial unaccountability that was rooted in Soviet practice and had survived the collapse of the old system, many observers hailed the ruling as a landmark in Russia’s transition toward genuine rule of law.

The fortnight saw signs of progress on other fronts. On March 28, Putin announced a package of tax breaks for small businesses that he said were as “revolutionary” as the 13 percent flat personal income tax he had earlier instituted. Small businesses would now be exempted from the value-added, sales, property, income and social taxes, and, starting next year, would have the choice either of paying a 20 percent tax on profits or an 8 percent tax on revenues. Putin’s plan also included elements of tax simplification: It would, among other things, allow firms to pay taxes quarterly rather than monthly and to immediately depreciate their assets rather than follow a government-dictated timetable.

Still, not everyone was impressed. Representatives of small-business lobbying groups and pro-small business parliamentarians complained that the changes would only apply to businesses with 20 employees or less and an annual income of no more than 10 million rubles (around US$322,000) a year. Others, including Oksana Dmitrieva, deputy chairman of the State Duma’s budget committee, said Putin’s small business tax reform contained less than met the eye, arguing that the tax on small business profits should be 5 percent rather than 8 percent. Meanwhile, Vladimir Mau, head of the government’s Center for Economic Reform, noted that many people believed more generally that taxes would be raised after just a few years–once taxpayers had revealed their true incomes–and thus urged the government to issue a joint pledge with the parliament that taxes will not be raised for five or even ten years. Still, the fact that tax reduction was even the topic of discussion was a measure of how far Russia had come.