Tax Changes Said to Only Fill Gaps

A top Russian government official conceded Tuesday that amendments to this year's tax code are stopgap measures that leave intact a system that scares off investors, but promised the government would do better next year.

"It is necessary to change this tax system and we hoped that this could be accomplished in 1997. But we failed," Sergei Shatalov, deputy finance minister in charge of taxation issues told a news conference. Russia's tax laws have become "outdated both technically and morally," he said.

Shatalov was optimistic that the State Duma would approve Wednesday a package of seven tax bills, which he said would boost budget revenue by 30 trillion to 35 trillion rubles.

"I hope that the Duma will back these agreements," Shatalov said, noting that a government-parliament conciliation commission had approved the package after first rejecting it and enacting revisions.

While the tax changes now before parliament are aimed at raising revenue rather than rationalizing the system, Shatalov promised that the cornerstone of a new tax code that would come into effect would be to sharply reduce the number of taxes and tax privileges.

"The number of tax breaks is so great that they pose a serious problem for financing the budget," he said, adding that the new code would slash the number of taxes on the books from 180 at present to no more than 30.

Shatalov was apologetic about the government's failure to enact fully the new tax code this year, blaming it on "foot-dragging" by the State Duma in considering the first part of the new code.

Legislators, however, have complained they were not able to review the first part of the new tax code without seeing the rest of the document.

Shatalov said the remaining three parts of this multi-volume document are expected to be submitted by a Finance Ministry working group to the government by the end of this year.

"We can be fairly certain that we'll enter 1998 with a new tax policy," he said.

Until then, he said, complicated and unstable taxation rules are main factors deterring large-scale foreign investment in Russia.

Bills currently before the Duma include amendments on abolishing of benefits on profit tax for enterprises, VAT, excise duties and income tax.

Another task would be to close the loophole in the current legislation that allows companies to pay their employees large sums on top of nominally small wages by channeling interest payments through banks or insurance companies.

"We want to shut off the paths for tax dodging that are available today," he said.

The changes appears to leave some loopholes unscathed, however. For instance, taxes will not be imposed on property, life or health insurance payments regardless of the sums obtained by individuals, Shatalov said.

The highest income tax rate, currently at 35 percent, should be lowered in the future to 30 percent, Shatalov said. However, the current income tax regime will remain intact next year, he said.