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. Last Updated: 07/27/2016

No Sympathy For Russia's Tax Collectors

A few weeks ago, the Moscow Financial Club, an organization that brings together a number of major banks and investment companies and which is headed by former Economics Minister Andrei Nechayev, decided to host an informal discussion between the country's most influential businessmen and the heads of the government's tax police.

Vasily Mizilin, representing the federal Department of Tax Police, tried to win over those attending the meeting by telling the story of his service's achievements. The most impressive of these was the fact that in the time since the country's tax services were created, nearly 5 trillion rubles have been returned to the country's coffers.

According to Mizilin's statistics, the amount of unpaid taxes uncovered by the tax services equals about 20 percent of all state tax revenues. It should be noted, however, that unpaid taxes "uncovered" and monies actually received are two very different things.

I recently had an opportunity to get acquainted with some of the details of one of the biggest tax cases in Russia. The tax inspectors in the Arkhangelsk district found out that one of the largest enterprises in the district, the Arkhangelsk Cellulose and Paper Plant, had not been paying its taxes and that a large portion of its profits from the export of cellulose had been hidden in an illegal hard-currency account in Europe.

It turned out that the plant owed nearly 90 billion rubles in back taxes, a sum that was duly reported as "uncovered" by the tax service last spring. However, almost none of that money has yet been received. The plant filed a case with the district appeals court and managed to get the sum reduced, and while arguments were being heard, no money was paid.

Two attempts on the part of the tax service to begin criminal proceedings against the plant's directors led to nothing. In both instances, the local prosecutors managed to close the cases. Now, every time the tax service tries to insist, it is met with the same arguments: If the plant is forced to pay, it will go bankrupt and that will ruin not just the plant's 10,000 workers, but the entire town of Novodvinsk and its 50,000 residents. That town was literally built around the plant and is completely dependent on it.

But one has to sympathize with the tax services as well. Mizilin noted at the Financial Club meeting that 220 separate attacks on tax inspectors had been registered in the last year. However, to judge by the reactions among the businessmen at the meeting, neither this fact nor anything else in Mizilin's speech did anything to generate sympathy for the services. For their part, the businessmen mentioned a huge number of abuses on the part of tax inspectors including the confiscation of records without any grounds and the conduct of audits at the behest of competitors and racketeers.

Of course, there aren't very many countries in the world where businessmen and tax inspectors share anything like brotherly love. But there are countries where the two co-exist peacefully. In Russia, where there is no tradition of respect for the law, much less for taxes, the relationship between business and the tax services is, if not open warfare, at least unconcealed enmity. And there is no getting around this, even at an informal, unofficial roundtable. Is it any wonder that the government collects only 60 percent of what it has coming to it?