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. Last Updated: 07/27/2016

Top Firms Targeted In Yeltsin Tax War

Hard on the heels of President Boris Yeltsin's pledge to make war on tax avoidance, top tax officials threatened Tuesday to start bankruptcy proceedings against six big Russian companies if they do not pay back taxes of some 1.5 trillion rubles ($275 million) within a week.


The threats against well-known companies, including oil majors Tatneft and Purnetegaz, were the first clear action taken by the government since Yeltsin's decision last week to form a new "temporary emergency commission" aimed at boosting tax revenues.


Yeltsin said urgent action was needed to fill a huge shortfall in the budget that has left the government without money to pay wages and pensions and caused a wave of protests across the country.


The six companies targeted Tuesday could soon be followed by at least another 10 large companies as the government closes in on Russian corporations that have run up tax arrears in the 37-trillion-ruble range this year, a senior government official said.


"Monday they [the six companies] were notified that in the course of a week they must pay their debts. If this is not done ... bankruptcy proceedings will be started," Pyotr Mostovoi, the head of the Federal Bankruptcy Board, told a news conference.


"The problems [with non-payments] now confronting pensioners and government employees and servicemen sit on the shoulders of these peo tax evasion. "These companies have systematically and intentionally dodged taxes," he said.


Officials at the companies cited could not be reached for comment Tuesday.


The government has drawn up a wider list with a total of 185 large companies that owe the federal budget 12 trillion rubles and regional budgets another 25 trillion rubles, Mostovoi said.


"This is the elite of Russian business. They are profit-making enterprises," he said. "But where are these profits?"


Purneftegaz, which owes the Russian government 335 billion rubles, declared a profit of 266 billion rubles last year.


Mostovoi said the companies are directly responsible for the crisis of public sector finances and huge government-wage arrears.


Mostovoi, however, hinted that some of the companies on the government lists have been hiding money off their balance sheets and said the firms were "ineffectively managed."


"Workers do not get paid because the cash that the enterprises are able to get goes into production in order to hide it from the tax man, in order to cheat creditors and so on," Mostovoi said.


According to government figures, only some 75 percent of planned tax revenue has been collected in the first nine months of the year, and the State Duma on Friday rejected the government's budget draft for 1997, citing its poor performance in enforcing tax payments.


Mostovoi said the decision concerning the six companies was "unrelated" to the new emergency presidential commission, which yet has to convene its first session, but he said the new commission would be "hand in glove" with the government's effort to step up its tax collection efforts.


"We are now considering the cases of another 10 major non-payers who pay taxes as irregularly," Mostovoi said.


According to figures from the State Tax Service, none of the six companies singled out Tuesday is among the top 10 non-payers. That list is headed by AvtoVAZ, Russia's largest carmaker, which owes the federal budget 2.9 trillion rubles, followed by the two oil companies, Yuganskneftegaz and Nizhnevartovskneftegaz that both have arrears of 1.3 trillion rubles to the budget.


Total arrears of payments into the federal budget stood at 72 trillion rubles by Oct. 1, said Valery Pavlov, deputy chairman of the State Tax Service. This would represent over one-fifth of total budget revenue.


A meeting between representatives of the Federal Bankruptcy Board and AvtoVAZ on Tuesday hammered out a deal under which the carmaker will pay its back taxes in order to avoid bankruptcy proceedings, Mostovoi said.


"Initially AvtoVAZ headed the list of candidates for bankruptcy," Mostovoi said, adding that the situation around the company remains "very serious."


Large Russian companies have blamed their tax problems on the general non-payments crisis in the economy -- where total arrears exceed 430 trillion rubles -- and have proposed a restructuring of old tax debts.


Earlier this month Gazprom, Russia's gas monopolist, acknowledged that it has run up a tax debt of 15 trillion rubles, but denied reports that assets of some of its subsidiaries have been seized by regional tax authorities.


Analysts contacted Tuesday said the government's move against the six companies had come as a surprise, and that it could be difficult for the companies targeted in the clampdown to raise large amounts of cash with such short notice.


"These companies have not been paying taxes presumably because of cash-flow constraints," a Moscow-based energy analyst said of Tatneft, Russia's fifth-largest oil producer, and Purneftegaz, which is the main production unit of the state-owned Rosneft holding.


It was not immediately clear what bankruptcy proceedings would mean for each of the six enterprises, but Mostovoi said there was "a high degree of probability" that production would be liquidated in at least one of the six companies.


Production at the Moskvich carmaker, with arrears of 271 billion rubles to the budget, has been at a standstill since the beginning of the year, and it is thought highly unlikely that the company will be able to pay.


According to a report in Tuesday's Segodnya, the government is also moving to eliminate a number of large spending programs, including state support for Moskvich.


With a mission from the International Monetary Fund due to review Russia's fiscal performance this week, pressure on the government to crack the whip on non-payers has increased.


But the presidentialdemergency commission has generally met with a cool reception from both business circles and the Russian press, interpreting the move as part of internal wrangling among government structures rather than a serious effort to resolve the country's non-payments crisis.


"The VChK [commission] will not collect a lot of taxes, but it will really scare the opponents," Nezavisimaya Gazeta wrote on Tuesday.