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. Last Updated: 07/27/2016

Russia Tax System Called 'MIA'

WASHINGTON -- Russia must recapture the momentum of its economic and market reforms if it is to join the ranks of highly successful economies, U.S. Deputy Treasury Secretary Lawrence Summers said.

Sounding a warning to Russia's leaders, Summers said that even though it has created markets, most of the country's economic reform process stalled last year.

"Successful transition does not end with the creation of markets," he said in a speech Thursday.

Summers was speaking at a symposium at Harvard University's Kennedy School of Government in Cambridge, Massachusetts. The speech was also released by the Treasury Department in Washington.

"To do nothing, or to continue to show the lethargy that characterized 1996, will almost surely consign Russia to the ranks of struggling nations and leave Russians little better off in a decade's time than they are today," Summers said.

A significant area singled out for criticism by Summers was Russia's tax system, which he said has some of the world's highest rates and the lowest collection.

"The Russian tax system was essentially missing in action in 1996, at least for domestic firms, threatening macroeconomic stability and even the minimal core functions of the government," he said.

"In contrast to the current system, tax rates should be low, and applied to as wide a base as possible," Summers added.

"In addition, taxes should be paid by all."

Citing a slowing in the pace of privatization and other reforms, he said the more Russia delays the reform process, the more difficult further progress will become.

Summers cited the growth of crime and corruption in Russia as another disincentive for investment there.

"The leadership of the government must say flatly that there is no longer impunity in Russia," he said.

A top priority for the Treasury Department is assisting Russia in the development of its capital markets, he said.

But the development of capital and equity markets has been hampered by inadequate infrastructure, abuse of minority shareholders, inadequate enforcement of new regulations, over-taxation and concentration of ownership in the hands of company insiders, Summers said.

Russia has a great potential for the development of mutual funds to tap savings and private pension funds, he said.

"Careful shepherding of the funds industry will be crucial to its development," he added.