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. Last Updated: 07/27/2016

Kudrin Sets Out His Plans for Tax Service

Finance Minister Alexei Kudrin on Wednesday set out to investors the government's plans to shake up the Federal Tax Service, which is being reformed after high-profile tax cases have hammered confidence in economic policy.

The tax authorities played a key role in the battle for Yukos and have sent potentially more damaging signals to investors with claims against VimpelCom and Japan Tobacco Inc., though claims against VimpelCom were later reduced.

Kudrin, whose ministry is formally in control of the Federal Tax Service after last year's administrative reform, told investors at a conference organized by The Economist that the government is moving to address their concerns.

"There are concerns about the state as a regulator, above all in the tax sphere," Kudrin said. The government has worked out "a set of proposals for improving tax administration, which should remove those concerns," he said.

Every tax inspectorate will have a separate department for dealing with complaints from taxpayers, Kudrin said. Tax claims above a certain amount will be subject to review within the tax service, he said.

Tax probes will have a limited time period to prevent disruption to businesses, and there will be caps on repeated tax probes and restrictions on the types of documents that can be demanded, Kudrin said.

Most of the changes could be made within a month because they do not require new legislation, he said.

The proposals, drawn up by the Finance Ministry and the Economic Development and Trade Ministry, in consultation with the presidential administration, have been approved by President Vladimir Putin, who said Tuesday the country needs to simplify its tax administration. The Cabinet will look at the proposals at the beginning of March, Prime-Tass quoted a source in the government as saying.

Kudrin said direct foreign investment fell to $6.6 billion in 2004 from $7.5 billion in 2003. In a frank speech, he said corruption and the judicial system remain problems but that the government is set on creating an open economic system integrated into the world economy.

"Economic policy would benefit from a clear statement that it is about building a modern competitive economy, which turns resources into value efficiently for the benefit of a wide section of the population," Roger Munnings, chairman and chief executive officer of KPMG in Russia and the CIS, said in an interview at the conference. "Part of that is that foreign investment is welcome where it brings value to the country."

But some were skeptical, with Oleg Deripaska sparring with Kudrin from the podium about the government's tax policies. Deripaska is chairman of the board of directors of Basic Element, one of the country's biggest industrial groups, with control of Russian Aluminum.

Deripaska said enterprises in his group get hit with tax probes four to five times a year and said growth would suffer until there is a presumption of innocence in tax matters and the chaos of tax probes was sorted out.

Deripaska criticized the government for failing to understand the importance of big business and slammed the Central Bank for being a closed organization with almost no transparency.