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

. Last Updated: 07/27/2016

Tax Amnesty Comes Into Force

The country's first tax amnesty came into force Thursday to a skeptical reaction from experts and confusion among banks, which by law will now be able to accept undeclared income earned before Jan. 1, 2006.

The law allows individual taxpayers and self-employed entrepreneurs to declare untaxed income and pay 13 percent tax on it, without having to explain its origins.

The tax can be paid into Federal Treasury accounts in banks and receipts for such payments will suffice as evidence of tax payment and will protect the bearer from being prosecuted on that amount.

While the amnesty lasts till Jan. 1, 2008, confirmation of payment must be kept until January 2012.

The law protects the taxpayer against prosecution even if information about the income is made public.

Those already convicted for tax offenses are exempted from the amnesty, a provision that rules out any hope for high-profile tax offenders such as Yukos executives Mikhail Khodorkovsky and Platon Lebedev.

Proposals for a tax amnesty have been in the works for several years. Last April in his state-of-the-nation address, President Vladimir Putin called for legislation to allow the repatriation of capital that has left the country since the collapse of the Soviet Union.

It is estimated that Russia has lost about $160 billion in net capital outflows since 1994. The government hopes to reap between $5 billion and $8 billion from the amnesty, but on Thursday some experts doubted that it would reach that number.

The head of the Economic Expert Group, Evsei Gurvich, said the law was doomed to fail because it was not preceded by tax reforms that could have prompted a change of attitude by taxpayers.

"As before, only one-third of Russian landlords and professionals in private practice pay tax, the rest work in the gray economy," Gurvich said. "The tax terrorism against Yukos and VimpelCom will come to haunt the implementation of the amnesty law, scaring taxpayers away for fear of persecution by the tax authorities."

Those who stand to benefit from the tax amnesty include individuals who failed to file tax returns before 2006 "especially if income would have been subject to higher tax rates had it been declared on a timely basis," Ernst & Young wrote in a statement.

Nonresidents who received any income before 2006 also stand to gain, since such earnings would have been taxed at a rate of 30 percent. Also benefiting from the amnesty are some material and gambling gains, which normally would attract 35 percent tax if declared.

Alexei Melnikov, a former Yabloko State Duma deputy and member of the Duma's Budget and Tax Committee, said the amnesty law was "a charade," adding that it required people's trust to make it effective.

"From my point of view, there is no trust about what will and will not be used to incriminate a person. No person who declares his unpaid taxes can be sure that after some time someone won't come to him and say that he is being charged with breaking the law," Melnikov said.

The law does not appear to have made an immediate impact Thursday, with many banks adopting a wait-and-see attitude.

At the Bank of Moscow on Sadovaya Triumfalnaya Ulitsa, branch manager Lobos Chechel said the branch would begin accepting income declarations and back taxes once the bank's head office had sent out the necessary documents. As of now, Chechel said, they are accepting neither. She did not know how long it would take.

Some banks are still in the dark about the law, suggesting that the whole exercise suffers from poor publicity.

"I can't exclude the possibility that the higher-ups will send us something about this, but so far we have not accepted any declarations," Lyubov Yanina, manager of a Sberbank branch on Sushchyovsky Val, said Thursday.

Some bank employees said the new law did not apply to their banks.

"All of our deposits are white, not gray, so this law does not concern us," said the customer service manager at Legion Bank on Krasnoprolitarskaya Ulitsa, who declined to give her name. While saying she had heard of the law from the news media, she said the bank was not taking income declarations or accepting payments on back taxes.

Alla Kosaya, an elderly woman standing in line inside a Bank of Moscow branch to pay her bills, said she would pay untaxed earnings if she had any. "It's not pleasant to wonder whether someone will come knocking on your door. ... Your nerves are worth more than that 13 percent."

A middle-aged man in line in a Sberbank branch, who asked not to be named, said his earnings were clean, but added that, hypothetically, he would "risk it" rather than pay taxes on any cash income.