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Russia: Government Wants To Have Tax Code In Place By 1999

  • Stephanie Baker

Moscow, 11 February 1998 (RFE/RL) -- Russian Finance Minister Mikhail Zadornov said Tuesday that this year is the last chance the government can hope to pass a new tax code.

Zadornov said at a news conference that State Duma must pass the tax code by the middle of the year or tax reform will be delayed by at least two years.

The code, which slashes the number of taxes and reduces rates, is considered essential to clean up Russia's messy public finances, troubled by chronic tax evasion. Tax collection was less than 70 percent of targeted levels last year.

Zadornov said Duma deputies must pass the bulk of the code by mid-year, otherwise it will be delayed by debate on the 1999 budget, which starts after deputies return from their summer break. This year is also the last chance for serious consideration of tax reform before Duma deputies begin gearing up for elections in 1999, which will be followed by presidential elections in 2,000.

The government submitted its draft tax code to the Duma February 2, which will be considered by deputies in March along with 10 alternative versions put forward by legislators and regional leaders. The code is a revised version of a bill submitted to the Duma last year, which deputies sharply criticized.

Zadornov said he was confident that the Duma would pass the code in a first reading in March, paving the way for full passage this year. The government wants to have the code in place by next year to base the 1999 budget on it.

Deputy Finance Minister Mikhail Motorin, who is in charge of tax reform, said the government's proposals would reduce the overall tax burden on the economy by 60,000 million rubles ($10 billion) or 2 percent of gross domestic product.

He said the code eliminates some exemptions, lowers taxes on company profits to 30 percent and reduce taxes on payroll as part of the government's efforts to discourage employers from hiding wages.

Motorin said the proposals attempt to meet the concerns of deputies halfway by reducing the tax burden more than in the government's original draft code.

The draft reflects a change of leadership at the Finance Ministry, which First Deputy Prime Minister Anatoly Chubais lost control over last month. He was replaced by Zadornov, a former deputy of the reformist Yabloko faction.

As a Duma member, Zadornov had sharply criticized the government's proposals for failing to reduce the tax burden significantly and giving too much power to the tax authorities.

Although some deputies have said the revisions will ease passage of the code in the Duma, others have said it still faces an uphill battle.

Svetlana Orlova, chair of the Duma's subcommittee on tax, said the government's draft tax code is an improvement over previous proposals, but warned that deputies will demand major changes before approving it. She said most deputies think the government's draft does not go far enough to reduce the tax burden.

Orlova said a special tax commission is considering the government's draft code along with the alternative versions. The Duma is scheduled to hold a hearing on the tax code on March 5, with a first reading of the bill to follow later in the month.

Although the government has succeeded in improving tax collection during the past few months, it is expected to have difficulty meeting the budget this year. The financial crisis has made borrowing on international financial markets prohibitively expensive, forcing the government to rely heavily on tax collection.

Zadornov said Russia would not issue a Eurobond until at least April this year, when financial markets are expected to improve.