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. Last Updated: 07/27/2016

Tax Issue Still Troubles IMF

A mission from the International Monetary Fund wrapped up loan talks with the Russian government Monday. But despite a significant pickup in Russian tax collection, billed as the main subject at the talks, the parties did not reach an agreement.


While tax revenues have increased after last month's creation of a "temporary emergency commission" to tighten financial discipline and crack down on tax dodgers, its real impact is hard to measure and it has avoided the biggest targets, analysts said Monday.


The IMF team has stressed that the key question is whether tax revenues are flowing in at an acceptable and sustainable rate. Apparently still unsatisfied with the answer, the delegation will continue negotiations next month about the release of one or more $340 million tranches of the Fund's $10 billion credit to Russia, wire services reported.


"The talks are not yet complete, and they will continue at the beginning of December," said Central Bank chairman Sergei Dubinin in remarks reported by The Associated Press. "They [the IMF] are taking a break for the Thanksgiving holiday. They'll eat turkey and come back," he said.


Officials and analysts have said a decision on unfreezing the loan is unlikely before the IMF board meets in early- to mid-December.


After totaling less than three-quarters of projections for most of the year, revenues exceeded projections in October. According to preliminary figures, payments came in at a pace three times faster in the first two weeks of November compared with the previous month, said Maxim Kulikov of the Finance Ministry's economic expert group.


The increase, however, is due not only to the commission but to "a number of measures," including the creation of duty posts, staffed jointly by the tax authorities and the police, at Russian alcohol-producing enterprises, Kulikov said.


"Most of the recent improvement is due to decisions taken earlier," said Christopher Granville, head of research with United City Bank, pointing among other things to the August decision abolishing government-issued tax exemptions that earlier accounted for up to half of nominal tax receipts. "But the commission is continuing and strengthening this current policy trend," he added.


The pickup in collection rates notwithstanding, corporate tax arrears remain enormous. According to government figures, 1,608 top Russian corporations have tax debts to the federal budget exceeding 51 trillion rubles ($9.3 billion).


However, most of the highly publicized clampdowns initiated by the tax commission against these companies have fizzled out with little apparent result.


Several of the large enterprises originally targeted by the commission, including oil majors Tatneft and Purneftegaz and truck maker KamAZ, managed to get off the hook, citing earlier tax payments or what analysts described as high-level political connections.


Also, charges of massive financial violations leveled by the commission against the giant diamond producer Almazy Rossii-Sakha earlier this month have been dropped, said Valentin Logunov, an ARS spokesman. "First they screamed at us, but then they fell silent," said Logunov, adding that neither the tax police nor the prosecutor's office nor the Finance Ministry now have "any claims whatsoever" on ARS.


From the outset, the emergency commission has been a prominent butt of criticism in the reformist part of the Russian media, which have suggested companies were often singled out by the campaign for reasons not purely financial.


One of the most recent additions to the list of company bankruptcies, the Chernigovets coal company based in the Siberian Kuzbass region is the only coal company there that is not monitored by the regional bankruptcy board, Izvestia reported. The enterprise was put on the bankruptcy list by the authorities in order to get rid of its pro-reform director rather than to clamp down on large arrears, the newspaper said.


Chernigovets owes the federal budget 72 billion rubles, the paper reported -- a trifle of the trillions of rubles owed by debtors such as carmaker AvtoVAZ and oil producer Yuganskneftegaz.


In fact none of the top-10 company debtors -- including politically well-connected enterprises such as AvtoVAZ, subsidiaries of gas monopolist Gazprom and major oil companies -- have been charged by the emergency commission.


"The government is not in a strong position" when dealing with debtors in the fuel and energy complex, Granville said. "The public sector often owes more to these enterprises than they owe to the budget," he said.


Still, some important companies will now have to face bankruptcy proceedings. A Moscow arbitration court will hear the bankruptcy suit brought against the ailing Moskvich car maker next month, said Valery Tsvetnov, a spokesman for the city government's industrial department.


In principle, the court can either appoint external managers to restructure the company or declare it bankrupt and sell off its assets.


Kulikov of the Finance Ministry said the companies targeted by the commission were chosen on the basis of their low rates of current tax payments and unwillingness to cut a deal with the government concerning their arrears.Those companies that have reached an agreement with the government "will not face the emergency commission," he said.