vlad.tribnet.com / Issue #156 / Business / Reading article...

When Russia’s much-anticipated new tax legislation stalled last month in the federal Duma, officials in Primorye knew that the following year would be a difficult one. But now that tax changes will not occur until the middle of 1998 at the earliest, locals have already chalked up 1998 as a wasted year in Russia’s reform process.

“There is nothing progressive coming into the tax system,” said Krai Administration Chief German Zverev. “We can say that 1998 is completely lost.”

The loss is particularly painful because of high expectations locals created around the new tax code, which was planned to take effect on January 1, 1998. After regional officials around Russia studied the document and offered suggestions on it, the federal government realized it would not pass through the Duma without significant changes.

“The original draft we received in September was far from ideal,” said Vladimir Sidnichuk, Director of the Krai Tax Inspectorate’s Organizational Department.

“It was going to be a new step in the tax system,” Zverev said. “We wanted it to provide a simple relationship between tax payers and financial organs, a simple base that discussed a taxpayer’s rights and responsibilities.”

Such a code, Zverev hoped, would have encouraged enterprises and residents of Primorye to begin paying their taxes. According to Moore Stephens Dalaudit Director Gavin Stoddart, under the current system, taxes comprise only eight percent of Russia’s GNP, while in a country with an efficient tax collection system numbers are three times as high.

The draft Zverev studied in September proposed leaving the krai without millions of rubles it collects under the current structure. The new codex called for higher property taxes and cuts in road and housing taxes. It planned for changes in the ways companies pay taxes to the social insurance and unemployment funds. Such changes, Zverev said, marked a shift in the flow of funds from krai to federal coffers. It would translate into cut social budgets for krai citizens, he said.

Stoddart, however, said that a centralized structure is crucial if Russia wants to streamline its tax system. “The simpler and clearer operations of the tax system are, in general the more likely a company is to work effectively,” he said.

“There ought to be limits at what can happen at the state level, particularly in a country going through economic upheaval.”

Such simplification, Stoddart argued, would be one incentive for locals to begin paying their taxes. “You must have a culture of taxation. Provided the system is reasonable, transparent, and equitable, people will accept it and pay their taxes. Here people think the system isn’t fair; they see that some people get away without paying.”

While tax legislation languishes, companies are sinking deeper into debt under accumulating debts they cannot pay. The fishing industry, one of Primorye’s largest producers, attributes its problems to the tax system, and others claim they can’t wait until mid-1998 for a new code.

OGAT, Primorye’s largest customs-bonded trucker, has shrunk by four times in the last two years. Company director Anatoly Shemchuk said that the enterprise now must find alternate ways to survive. “For OGAT [the tax delays] all mean the same thing,” he said. “We must find a way to dodge taxes, to not pay them, or the federal government will halt us in our tracks.”

Shemchuk could not say how long he will continue exploiting the tax system’s loopholes. Many company directors laugh at the question of when the krai will start seeing an improvement in the tax strucutre here, regardless of the developing tax code that continues to bang about at federal levels.

“Our system has been going like this for seven years, and we’re now all running on hope.” Sidnichuk said. “As for enterprises living better and simpler any time soon, I simply don’t see it.”