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. Last Updated: 07/27/2016

INSIDE RUSSIA: Russian VAT Now Levied By Telegram

How do you think new taxes are levied? By presidential decree? Through laws? Government resolutions? No, in Russia new taxes can be levied by telegram.

The January government telegram signed by the first deputy head of the State Tax Service, Yevgeny Bushmin, is proof of this. As everyone knows, value-added tax is not collected in the place where goods are produced but where they are sold. For this reason, the country that produces the goods is obliged to return VAT to the exporter as soon as they cross the border. According to Bushmin's telegram, tax will henceforth be returned not by the tax inspectorate on the spot, but "after the confirmation of the lawfulness of the stated compensation by the State Tax Service of Russia."

In 1997, Russia exported $87 billion of goods. It also returned $17 billion to exporters. This $17 billion is a free credit that factories extended to the government during the period between the export of their products and reimbursement of VAT. The government regularly issues instructions that allow it to use the credits for a longer term under the pretext of "fighting with violations."

Last March, the State Tax Service issued Resolution No. 39, which stipulates that VAT will be returned to exporters not when they show documents on crossing the border, as is the case throughout the world, but when they receive the necessary documents from the importer country. The official reason is the fight against false exporting. But imagine a company like Severstal, which produces 17,000 tons of metal per year, sending this metal across the border and back again.

The resolution mainly hit metallurgy and chemicals production. Metallurgy makes up 17.5 percent of Russian exports, and the fuel and energy sector 46 percent. The speed with which gas is sent through pipelines (and VAT is returned) is incomparably greater than the speed of exporting metals. Many of the factories in the heartland of Russia, such as KrAZ, have little prospect of even receiving the VAT owed them by the government given that there is a 180-day deadline for presenting documents.

"We ask the Chinese to send us documents to our customs," I was told by someone at a chemical factory, "and we get a broad sheet in return. We ask where the importer country is indicated. And they show us some minuscule hieroglyphs." The State Tax Service is then offended and does not want to take this blanket-sized paper -- which is for Chinese internal use. Why, after all, isn't it written in English or Russian?

Then exporters such as NLMK, Magnitka, Serverstal, BrAZ, SvAZ and KrAZ took the tax service to court and won. The state did not reconcile itself to this, however, and the instruction on the fight against false exports was replaced by a telegram on the fight against violations such as tax arrears in the provinces.

The minimal price for such a telegram is 7 to 9 percent of the circulating assets of a metals company. The government once again is trying to collect taxes not where they let them fall but where they can see them in the light. Exporters, however, are likely to respond to the government's arbitrary campaign accordingly.

Yulia Latynina is a staff writer for Expert magazine.