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. Last Updated: 07/27/2016

Border Law Sets Sights on Tax Evaders

A new law theoretically could keep you from leaving Russia if you owe back taxes, but government officials and foreign tax experts say there is no reason for alarm -- at least, not yet.


The Moscow office of Deloitte & Touche spotted the provision in a new law listing reasons the Immigration Service can block people from leaving Russia, and sounded a warning in a Sept. 23 newsletter.


People can be stopped at the border if they have "not complied with Russian tax laws" or "owe the state taxes," it said.


The law, signed Aug. 15 by President Boris Yeltsin, is among a host of measures the cash-strapped Kremlin is devising to boost its chronically poor federal tax collection.


But analysts played down the likelihood that tax screening will become part of the ritual at passport control anytime soon. The State Tax Service is notorious for poor record-keeping, uneven enforcement and lack of sophisticated computer systems.


"At this stage, it is difficult to imagine how this could be effectively implemented without reducing Sheremetyevo [airport] to a standstill or starting a riot," the Deloitte & Touche newsletter said.


Several government tax officials said they knew little about the new law.


"I heard about such law, but we haven't received any instructions regarding its implementation yet," said Anna Kamardina, deputy head of the State Tax Service department responsible for individual taxpayers.


The deputy head of the Finance Ministry's tax reform department, Kirill Kotov, said the law "could be enforced, but I cannot say when."


In principle, at least, enforcement would be relatively simple.


"All [immigration services] would have to do is to connect their computers to the tax service when they verify passports at the border," said Paul King, who specializes in expatriate tax issues at Deloitte & Touche.


Another possibility would be requiring foreigners who work in Russia to present at the border a clearance slip from the federal tax service, King said.


But an immigration official at Moscow's Sheremetyevo 2 international airport said she had heard nothing about such plans.


"Maybe [the tax service] will do that, but we were told nothing about it," said the official, who did not wish to be identified. She also refused to comment on the feasibility of connecting the immigration and tax service computers.


King said that regardless of the enforcement method, the tax service's well-known record-keeping problems could cause confusion. "It could happen that a person who has paid all his or her taxes could be denied exit because the tax service has not properly registered their payments," he said.


"In practice, it couldn't really work," said Scott Antel, a tax specialist at Arthur Andersen in Moscow. "For example, at this point I couldn't file my tax return for 1996 yet because it's only due next April."


Foreigners who reside in Russia more than 183 days are subject to Russian income taxes on their worldwide earnings, said Antel. In general, foreigners who earn about $2,500 are subject to a 12 percent tax, and it increases to 35 percent starting at $9,000, Antel said.


The law might seem attractive to a government hurting for revenue, but Antel said it likely would "raise little revenue for a lot of effort" because foreigners are considered to be among Russia's better taxpayers.








"The level of foreigners' compliance to Russian tax laws is miles ahead of the level of compliance by Russians," he said.