Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Careless Talk Could Cost Taxes

Idle gossip around the office could prove to be very costly if parliament adopts the draft law on tax police now being proposed by the Russian tax inspectorate.


In its efforts to balance Russia's budget, the inspectorate has proposed that its special tax police be given two new powers -- they will be able to offer rewards to informers and to operate as undercover agents in firms under investigation.


If the draft law is passed, informers will be eligible for a tax-free reward of up to 10 percent of the amount recovered as a result of the informer's evidence.


"If no other means of obtaining the information is available", the tax police will be also able to send in undercover agents on a temporary basis into companies and organizations under investigation.


While the provisions are not unknown in richer countries, tax lawyers fear they will not raise the reputation of Russia's tax collection service.


"I hope it is not adopted", said Lyudmila Mamet, tax partner with accounting firm Coopers & Lybrand. "The tax office should only be authorized to investigate with open and clean ways".


The Russian tax system was in a mess last year. Prime Minister Viktor Chernomyrdin said earlier this month that revenues in 1992 were 30 percent below predictions. This was a big factor in the Russian government's huge deficit which came in at over 10 percent of gross domestic product, and was a major factor in fuelling inflation.


Some tentative indications have emerged that the inspectorate may have turned the corner. Tax receipts for January were a record 1. 1 trillion rubles, an improvement in real terms on 1992. The tax inspectorate says it has improved assessments and collection is stricter.


The big failure last year was the government's value-added tax which was supposed to be the government's big revenue earner. This was supposed to be levied on all goods and services sold in Russia at the rate of 28 percent, but because of the general confusion, the money simply was not being collected.


The VAT rate fell to 20 percent this year but the tax inspectorate has issued new guidelines as recently as last month which should increase total revenues from the VAT.


The tax picture in Russia has been further clouded by a series of changes introduced to tax laws by parliament in a law passed Dec, 22. Most noticeable to foreigners, has been the fact that from Feb. 1 VAT was applied to imported goods which were previously exempt.


Parliament has changed the company profits tax law in an attempt to stop firms paying workers above the minimum wage. In most countries wages are tax deductible to firms.


But from Jan. 1 in Russia if firms pay their workers above 9, 000 rubles a month, the wages are not deductible. and if the wage rises to 18, 000 rubles a month, the company tax rate rises to 50 percent from 32 percent.


Mamet criticizes the new approach which she says is designed to curb excessive wage growth but is "not a market-oriented measure".


Not all the tax news is bad. Parliament has widened criteria for reinvesting company profits, and has offered a special concession to the real estate industry. Anyone who purchases a flat or country house can deduct a large slice of the money from their income tax.