…WHICH, THE GOVERNMENT HOPES, WILL SHRINK THE “SHADOW ECONOMY”.

The government’s tax reform package is part of the overall plan developed by the Center for Strategic Developments, the think-tank formed by Economics and Trade Minister German Gref to develop a ten-year reform plan for President Vladimir Putin. The architects and supporters of the tax reforms–particularly the flat tax–stress that the reforms are designed to reduce the high levels of tax evasion in the country. The ultimate goal is to increase revenues by making tax compliance and legalizing incomes a matter of rationality and self-interest while closing the loopholes and exemptions with which the current system is riddled.

Some skeptics, however, argue that the overall tax burden, particularly on businesses, is not being changed radically. Their reasoning: The social taxes–which are currently paid largely by employers–are only being reduced slightly, which will not give businesses enough incentive to leave the shadow economy and legalize their revenues. In addition, individual Russian citizens, the vast majority of whom are in the lowest bracket, will now be required to pay 13 percent instead of 12 percent, which is the lowest bracket under the current system. Meanwhile, excises on gasoline will be raised six times and those on tobacco doubled. According to some observers, this will lead to an across-the-board rise in consumer prices (Vlast, June 6). Others argue that the new excises will lead to a huge growth in the black market for alcohol and tobacco products.

While observers and experts debate the pros and cons of the proposed tax reforms, the government’s overall attempts to reform the economy received an unexpected endorsement from George Soros. The American financier and philanthropist, who has frequently criticized both the business and political climate in Russia, said in a radio interview yesterday that he saw “renewed vigor in the economic field” and believed that the Putin administration was “very serious about passing the right laws and reducing arbitrary interference in business.” Soros did express concern about the May 11 raid by armed government agents on the headquarters of Media-Most, saying that it showed that Russian media are “free but not independent” and that it was a signal that NTV, the Media-Most’s main television station, had “expressed its opinion too openly and independently.” Soros also said that he had been disturbed by Putin’s stated goal of establishing a “dictatorship of the law,” adding that what is really needed in Russia is the rule of law (Radio Ekho Moskvy, June 6).

Earlier this year, during the World Economic Forum in Switzerland, Soros called on the International Monetary Fund to pull out of Russia, pointing to the war in Chechnya as a sign that political developments in the country were “moving in the wrong direction” (Moscow Times, February 1). Soros, who is currently visiting Russia, is set to meet with Prime Minister Mikhail Kasyanov today and will possibly meet Putin later this week (AP, June 6).

PUTIN’S MISSILE DEFENSE PROPOSAL STAYS IN THE NEWS.