Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Fate of Tax Overhaul Has Kasyanov Edgy

Prime Minister Mikhail Kasyanov said he was worried over the fate of a revolutionary plan to change the country's taxes after parliament rejected of oneof its key components.

Kasyanov said in a television interview broadcast Sunday that the State Duma would be asked to reconsider its decision to retain a tax on turnover, which the government believes is inefficient and paves the way for fraud.

He made it clear the government intended the entire tax bill would be passed as a package.

"The latest Duma decision fueled concerns and ? led us to the thought that this event raised worries about the fate of the tax reform," Kasyanov said in the interview with RTR television recorded on Saturday.

President Vladimir Putin said in his state-of-the-nation address Saturday that one of the economy's biggest problems was its ineffective tax system, which was provoking capital flight and discouraging investment.

Changes to that system were among the first steps he made after his election, so was trimming the powers of the leaders of the country's 89 regions, which benefit from the turnover tax.

The Duma, the lower house, where pro-government parties gained ground in December's parliamentary elections, quickly passed most of the new tax laws, including a revolutionary 13 percent flat income tax.

But Wednesday, the deputies were staunch in defending the 1 percent turnover tax, which the government wanted to eliminate altogether along with other taxes it considers to be ineffective.

The Federation Council, the upper house, appealed to the Duma to raise the turnover tax to 2 percent.

Kasyanov said only 60 percent of the existing turnover tax, which in theory should bring in 50 billion rubles ($1.8 billion) annually, could be effectively collected.

Of that, he said, more than half was not paid in cash but with so-called means derivatives, which are payments in supplies to the government or one of its agencies, or by settling unrelated debts.

Kasyanov said that was forcing businesses into gray areas, and that is something that the government could not approve.

He hinted that behind opposition to the tax system overhaul were those who benefited from the complicated deals currently used to negotiate payments.

"It is inexplicable why replacing this tax with a transparent excise duty, which is fully paid in cash and then goes to governors to be used for similar aims, should not work," he said.

Kasyanov admitted that problems with the turnover tax were the first serious crisis in the smooth relations between the government and the Duma, but he was cautious not to attack the deputies outright.

"I do not want to call it a mutiny," he said. "I want to believe this was the result of fatigue and the lack of time to work out details."

He said the Duma would be requested to give the law a second reading July 19 after government amendments, but cautioned there was little room for compromise.

"The government wants to be consistent," he said. "When we discussed the [economic] program, we agreed there should be a systematic approach and one step cannot be torn from the others."

"Otherwise, our government will face the fate of its predecessors who ended in half-hearted steps, [with a] watered-down program and a deteriorating economic situation," he said.