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. Last Updated: 07/27/2016

INSIDE RUSSIA: Tax 'Reform' Doesn't Pass Leftist Test




Last week we witnessed an event no less significant than a default: The government approved a State Tax Service plan to slash taxes. The plans are to cut value-added tax from 20 percent to 14 percent, cut obligatory payments to the State Pension Fund from 28 percent of base pay to 19 percent, and change the income tax brackets.


Earlier, the State Duma budget committee had approved a plan to exchange excise taxes on oil (to the tune of 55 rubles a ton, a paltry sum compared to the 1,800 rubles the oil companies receive for a ton of export oil) for a so-called "tax on windfall income." This tax is calculated according to a fairly complex formula that takes into account the profitability of the oil field. And since you can paint a field's profitability however you like, it's fairly certain the oil barons won't pay any taxes at all.


Governments should be identified as leftist or rightist not by their words or by the party of the prime minister. Governments should be identified as rightist or leftist according to one criterion: whether they raise taxes or lower them.


The "reformers" relentlessly raised taxes. The package of reforms offered by former Prime Minister Sergei Kiriyenko, aimed to "shift the tax burden from producers to consumers," ended with the de facto doubling of tax rates on enterprises. And only the weak government of Primakov the Delayer is actually inclined to give Russian enterprises 60 billion rubles ($3.3 billion) a year as a gift.


The roots of this generosity lie in the compromised nature of this government. Behind these government initiatives stands the new chief of the State Tax Service, Georgy Boos, who is close to the mayor of Moscow and to the oil companies. Boos is willing to befriend anyone who befriends him, and in his former existence as a Duma deputy his liberalism was always extraordinarily pragmatic.


This may well be what differentiates him from his predecessors. The former heads of the State Tax Service - Vitaly Artyukhov, Alexander Pochinok and Boris Fyodorov - were extremely liberal and were always ready to declare that Russian taxes, as they currently stand, are unpayable.


This didn't prevent them from suffering from a terrible double-think as soon as the issue of specific payments came up. This writer herself witnessed a scene in a prestigious liberal milieu where Alexander Pochinok, spotting a former colleague who had gone on head of one of Russia's largest companies, tore across the room after him, yelling "Petya! Why haven't you paid your taxes yet?" "Petya" dashed out through a side door.


This double-think comes from the reformers' belief that the tax system provided them their only leverage over the omnipotent oligarchs. The current government does not suffer from double-think: It likes the oligarchs, directors, communists, and everyone else. In the end, the compromised and weak Primakov government will turn out to be more liberal than the government of reformers that constantly tried to show strength it didn't possess.


Yulia Latynina is a staff writer for Expert magazine.