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Analysis: Impact Of The Market

Strike leader Anatol Shumchanka (left) and Deputy Prime Minister Anatol Kabyakou speaking in Minsk on 1 March On 1 March, small retail traders went on an open-ended strike, protesting a new taxation rule requiring that they pay an 18 percent value-added tax (VAT) on goods imported from Russia. Beginning 1 January, Belarus switched to the country-of-destination principle in VAT collection in trade with Russia. The protesters, operators of stalls and kiosks at outdoor markets throughout Belarus, want the government to abolish VAT for individual entrepreneurs who pay the so-called single tax (a fixed sum of some $150 per month). According to organizers of the strike, some 80,000 vendors have refused to pay VAT on Russian imports.

Three weeks later, the strike is continuing, although on a considerably lesser scale than during its first days. President Alyaksandr Lukashenka took an unprecedented step on 10 March when he visited a market in Minsk and promised vendors that the government will soon address their concerns regarding the VAT payment on commodities imported from Russia. Lukashenka said the government may negotiate only the VAT payment system, not whether or not the tax should be paid. "The transition to the new principle of VAT collection in trade with Russia should be made as painlessly as possible for sole entrepreneurs," he added.

A week later Lukashenka vowed to issue a decree in the near future to improve conditions for the operation of vendors. The decree will reportedly allow market vendors to continue until 1 July to pay VAT on Russian imports without producing documents confirming the amount of their purchases and prices. Lukashenka instructed the government to work out a new mechanism for VAT payment after 1 July. Lukashenka also suggested that local administrations lower rents for outdoor market stalls and kiosks, effectively compensating vendors for losses brought on by VAT payments.

Will these steps by the government mollify the protesting vendors? This will largely depends on what mechanism for VAT payment the government will propose after 1 July. The essential problem seems to be that Belarus has no customs border with Russia. Belarusian vendors, who buy goods at big outdoor markets in Moscow or other Russian cities -- where as a rule nobody wants to give them any purchase documentation -- practically do not have any reliable records confirming what they ship to Belarus. If the government comes with a very rigorous proposal regarding the purchase documentation for Russian exports, the protest may not die out soon.

Kid Gloves

The behavior of the authorities toward the protesting vendors has already been surprising. When some 3,000 vendors gathered in front of the government building in Minsk on 10 February with a petition signed by some 30,000 against the VAT payment on Russian imports, police did not intervene, even though it was an unauthorized rally. What's more, the rally was addressed by Deputy Prime Minister Anatol Kabyakou -- a situation that nobody remembers to have happened in Belarus in the last five or six years. So far, the authorities have been used to ignore opposition rallies if they were sanctioned or use police forces to deal with unauthorized ones. And by the end of February Lukashenka amazed everybody even more by issuing a decree that lowered VAT for foodstuffs and goods for children to 10 percent.

Carrots aside, Lukashenka has also used the stick. The authorities have twice jailed Anatol Shumchanka, a leader of the striking vendors, for calling for unsanctioned protests. Shumchanka was not released after his second jail term but placed in a pre-trial detention center on hooliganism charges for allegedly beating his cellmate. The new charge -- which Shumchanka claims to be a provocation -- may carry punishment of up to two years in prison. Shumchanka, who repeatedly called on vendors to come up only with economic demands and not to make the strike political, may now want to reconsider his stance, as it is widely believed that if his colleagues remain silent on his lot, he may indeed get a prison term significantly longer than the two previous jail terms.

Importantly, the vendors' protest has shown the soft underbelly of Lukashenka's regime. First, the protest has shown that the regime is really afraid of large-scale social unrest. As long as the regime has to deal with several dozen oppositionists on the street, it routinely sends riot police to respond. But when a protest involves a wider social group, police methods are deemed inadvisable. Apart from some 100,000 market vendors, the problem of VAT payments on Russian imports affects also hundreds of thousands of customers -- essentially Lukashenka's bread-and-butter supporters -- who are too poor to buy foodstuffs or other basics in shops and purchase them at outdoor markets. Police batons won't do much good in such a situation.

Second, the vendors' protest obviously presents a challenge to Lukashenka's boast that Belarus under his leadership is, politically and economically, the happiest and most stable country in the former Soviet area. Therefore, while making some small concessions to the protesters, the government is also trying to avoid creating an impression that it may bend to the protesters' will. For this reason, Lukashenka will never release vendors from paying VAT altogether, even though the economic gain for the state from this tax is quite insignificant. According to estimates by independent experts, the state budget can expect hardly much more than $0.5 million per year in VAT on Russian imports by small retail traders.

The vendors' protest should also serve as a fingerpost for the Belarusian political opposition, which has repeatedly failed to mobilize any significant groups of voters for its agenda in recent years. Belarusians have turned out to be largely deaf and blind to such issues as democratic governance, civil society, media freedom, and human rights in their country. But when it comes to economic issues, Belarusians' patience and forbearance seem to have a limit. The opposition might well take note on how to use such outbreaks of economic discontent to its advantage in the run-up to the 2006 presidential election.

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