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. Last Updated: 07/27/2016

Crackdown Predicted To Reap Tax Revenue

Russian enterprises unwilling or unable to pay their federal taxes could face tough going soon as tax inspectors are forced to crack down and reel in desperately needed revenue, analysts said Wednesday.

Government officials have known all along they had a problem, but the International Monetary Fund sent a loud wake-up call this week by suspending the next monthly tranche of Russia's $10 billion, three-year loan.

The fund cited alarmingly low tax collections and Russia's failure to meet a requirement that government hold its budget deficit to below 4 percent of gross domestic product for 1996.

During his recent tough re-election campaign, President Boris Yeltsin let slide much-needed tax revenue in the form of deferments, treasury tax exemptions and investment credits, analysts say.

"There simply hasn't been sufficient political will to go after the taxes," said Alexander Chmelov, a partner in the Moscow office of law firm Baker & McKenzie.

First Deputy Prime Minister Vladimir Kadannikov conceded Wednesday that the government's use of tax offsets -- paying contractors with certificates that could be used later to cover obligations -- had backfired, leaving the treasury desperately short of cash, The Associated Press reported.

Monthly tax collections, which had slipped to just 18 trillion rubles ($3.6 billion) in the first half of 1996, will have to increase 30 to 40 percent in the second half, plus an added 35 trillion rubles by year's end, Deputy Finance Minister Oleg Vygin said this week.

"Historically, the tax authorities and the state look on companies as the main source of collecting taxes, since it's more difficult to track the individual," said Alexander Dneprovski, general director of Patterson, Bellknapp, Webb & Tyler in Moscow.

But while bookkeeping tricks such as exemptions may be coming to an end, Kadannikov said the government might allow enterprises to pay part of their taxes with goods. "There's no way we can avoid going back to replacing monetary transactions with commodity ones," he told Interfax. Oil companies, for instance, could supply the military with fuel, the equivalent cost of which would be deducted from their taxes.

Tax specialists branded such measures as a step back to the days of Soviet command economy.

"Who's setting those prices? Obviously they're going to inflate the prices and settle the accounts that way," Chmelov said. "Really, the best thing is do is to start enforcing the law."

Powerful political connections still play a role in Russia's tax shortfall. The National Sports Fund remains a tremendous tax loophole through which alcohol and tobacco are imported virtually in tax-free. "All these exemptions are a good environment for corruption. They have to abolish them," Dneprovski said.

But the state and federal tax police may have some new incentives in the tax battle. Yeltsin earlier this month signed a decree entitling tax police to half of any additional revenues they collect from an audit.

"But if the president is trying to improve collections, and giving 50 percent to the tax inspector, how are they going to reduce the deficit?" asked Veronica Misiutina, tax manager at Price Waterhouse.

Despite pressure from the IMF to raise tax revenue, the Russian government still plans to ask fund officials to allow a reduction in planned higher oil excise taxes.

The taxes are necessary to make up for the loss of oil export duties, which the IMF insisted the country must scrap because they are counterproductive.

But Economics Minister Yevgeny Yasin said Wednesday that the oil sector currently pays "excessive taxes" and that some IMF loan terms need "correction," Interfax reported.