. Last Updated: 07/27/2016

Quickie Tax Laws Won't Go Far

Those who make our laws occasionally come up with some strange documents. The new tax legislation, proposed by the president and the government, reminds me somewhat of a Moskvich automobile. On Dec. 24, 1991, I bought a Moskvich, but I wasn't able to go far in it. The engine was always stalling because its components were not adjusted and the screws were hammered in instead of screwed in. I was in a rush to make my purchase before the announced Jan. 2, 1992, price liberalizations.


The latest tax decrees give one a similar impression. Their authors were also in a rush to put their production into operation. But it is unclear whether they will be able to ride the long road toward filling the state treasury.


One cannot argue with the fact that the situation with budget revenues is a difficult, if not miserable, one. The greater part of the budget is filled, not by tax revenues, but by income from the sales of state securities and the redemption of tax amnesties that were handed out instead of subsidies that were promised during the election campaign in the winter and spring of 1996.


At the same time, there are the hundreds of large companies, including many of the so-called flagships of domestic industry, who are just not paying taxes.


What methods are being proposed to solve the budget crisis, which threatens to become even worse in September and October when a large volume of state securities are due to be paid off?


A war without limits has been declared against companies that don't pay tax and the government has used some logic and practical understanding in its policy on this point.


It is well known that salaries are taxed at a rate higher than anything else. In Moscow, for example, more than 50 kopeks to every ruble of a worker's salary is due the government in the form of taxes. Therefore, the most widespread form of tax evasion has been to pay salaries "on the sly" in the form of interest on fictitious deposits into private bank accounts.


To counter this, a recent decree for putting income-tax collection into order calls for levying taxes against everything, including deposits into private bank accounts. Of course, in the heat of the tax campaign there has been no time to draft a decree that would distinguish between real and fictitious deposits. And of course, no one stopped to think about details like payments for alimony and pensions. Legitimately earned salaries too, according to the letter of the law, will have to be taxed a second time when they are deposited into private accounts.


The decree will put the tax inspector in a difficult situation: He will have to levy taxes twice, on deposits as well as on salaries, which informed taxpayers are likely to protest in court citing the Civil Code.


Bankers will not find themselves in any better circumstances. They will have to endure an ordeal, completely against their natures and against the law "On Banks and Banking Activities." It seems as if the new legislation's authors have especially strong feelings for bankers. Judging from their determined attempt to involve bankers in that activity so beneficial to society -- enforcing tax laws -- one might think that the authors have assumed the theoretical position of physiocrats, who believed that agricultural work was the only type of legitimate production, and that any other activity, including that in the financial realm, was mischief.


In particular, this additional decision obligates banks to make sure taxpayers close their innumerable accounts and concentrate their resources where the tax inspectorate will have access to them.


It is like a daydream. The lazy tax inspector sits in his office while, throughout the country the busy worker-bee bankers, having forgotten about forward and futures trades, shoulder the burden of finding the secret accounts of treacherous tax evaders. Such a vision is unlikely, but how else can the country's leadership make good on its plans?


Of course, there are still ways for improving the budget-revenues situation with the stroke of a pen. Such was the introduction of a value-added tax on goods imported from Ukraine. For all intents and purposes, they are closing a loophole for legal contraband. The simplicity of the decision does carry with it the possibility of undoing it, which the Ukrainians have already suggested. Immediately after VAT was levied on Ukrainian goods, including sugar and metals, Ukraine's prime minister asked Viktor Chernomyrdin to repeal the decision.


We will return to the fact that it would be difficult to call today's level of tax collection anything but outrageous. However, will these new measures have any effect? To some degree, yes. They have at least succeeded in launching a psychological attack. The feeling of a massive campaign has been created, and fear has crept into the hearts of the most sinister tax evaders. Reports that goods and property rights even of entire factories have been confiscated by the tax police have also had their effect. The only thing that is unclear is who will sell off the bounty.


On the other hand, it is clear that a portion of the measures, like the decree on private bank accounts, will require the publication of volumes of instructions as to how they are to be implemented, a result far from what the authors had in mind.


And finally, judging from lawyers' comments, some of the measures directly contradict current legislation. As chess players say, the faster you play, the worse you play.


Returning to our analogy about my Moskvich, that may be what is in store for the situation with taxation. I tried to drive the car for a while, but it was impossible to get the thing into good working order. In the end the feared price liberalization when I was buying the car ended up bringing a wide selection of automobiles onto the domestic market. As a result, we sold the Moskvich and bought a Toyota.


Unfortunately, we must be concerned that the proposed packet of tax measures, even after significant fine-tuning, may not "drive." And then something new will have to be put together, something perhaps not so fast, but more carefully thought out and appropriate.