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. Last Updated: 07/27/2016

Zadornov: Tax Code Will Pass in Mid-'98

Finance Minister Mikhail Zadornov expressed confidence Tuesday that a reworked tax code would gain final parliamentary approval by the middle of this year, paving the way for a long-overdue reform of Russia's shoddy tax system.

"I simply exclude the possibility that the tax code will be rejected," Zadornov said at a news conference. The parliamentary opposition, he said, "is just as interested in passing the code as the government."

The code promises more protection of taxpayers' rights and deeper tax cuts for enterprises than a previous draft which legislators blocked last year.

Zadornov said the tax code must pass this year before deputies of the State Duma begin gearing up for 1999 elections, which will be followed by presidential elections in 2000. "Either the tax code is accepted by the middle of this year, or tax reform will be postponed by two or 2 1/2 years," he said.

Duma Deputy Ivan Grachev, a member of the Yabloko faction and one of the code's most active critics, gave a relatively upbeat appraisal Tuesday, saying the document had a 60 percent chance of passing a first reading. But he said the first reading was likely to happen in April, not March as the government hopes, and he didn't expect final approval until the fall.

"It's more realistic that it will be passed in the fall and implemented from the beginning of 1999," Grachev said.

Tax reform, essential to future growth and investment in Russia's economy, has been a top demand of the International Monetary Fund, which presently has a mission in Moscow to review the country's performance under a $10 billion loan program.

Zadornov said he expected a positive outcome from the IMF mission's visit. "We must agree on a monetary and fiscal program for 1998," he said. "We plan to do that by the end of the week."

The IMF's approval would be an important vote of confidence for Russia, which has been on the brink of a financial crisis because stock markets have plunged and interest rates risen around the world.

Zadornov reiterated previous statements that the government would not borrow abroad to finance its budget deficit until the second quarter of this year.

"We don't want to borrow money at rates higher than those at which we borrowed last time," he said.

The new tax code was submitted last week to a special Duma commission, which must now choose a working draft from among the government's version and some 13 alternative drafts.

Legislative aides that the government's draft will most likely form the core of whatever the Duma, parliament's lower house, ultimately approves.

Zadornov's deputy, Mikhail Motorin, the Finance Ministry's point man on the tax code, said the government had made significant changes to the code.

The government's reworked code cuts corporate profits tax to 30 percent from 35 percent and reduces rates for agricultural producers and small businesses. It also strengthens taxpayers' rights by requiring tax authorities to seek court approval before levying fines.

In a concession to regional leaders worried about financing for infrastructure projects, the road tax will not be killed immediately, but phased out over a two-year period.

Zadornov went out of his way to say the Finance Ministry had included many proposals put forth by Yabloko, which has been the most implacable Duma faction.

But Grachev said the changes had a "formal" character, and that he was still not satisfied with the document as a whole.

He said a proposed sales tax would actually increase the burden for most taxpayers, and that tax authorities could still issue instructions with the force of laws and search homes and businesses without a court order.