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Former U.S.S.R.: Tax Evasion Is Everyday Behavior

By Katarzyna Wysocka

Prague, 3 October 1996 (RFE/RL) -- The Russian State Duma has a problem this week as it starts to draft the 1997 national budget: People aren't paying their taxes and government agencies aren't paying their bills.

And the tax evaders include some of the country's largest enterprises. News reports say the national gas company, Gazprom, alone owes the equivalent of $2.8 billion in unpaid taxes.

Despite profits last year of $3.2 billion, Gazprom President Rem Vyakhirev defended the company's tax resisting in a letter this week to the Duma. He said Gazprom customers owe the company the equivalent of $8.8 billion. Among the biggest defaulting customers: federal agencies, including the armed forces, the cities of Moscow and St. Petersburg, and the regions of Bashkortostan and Tatarstan.

Gazprom has a lot of company in Russia. The French newspaper "Le Figaro" recently quoted the Russian economy minister, Yevgeny Yasin, as saying that of 13 million Moscow residents, only 70,000 even filed tax declarations in 1994. That's 1 in every 186 persons. Economists estimate that 40 percent of the goods and services produced in Russia go officially unrecorded.

And even taxes that are assessed don't get paid. Analyst Peter Rutland of the Prague-based Open Media Research Institute (OMRI) told RFE/RL that in the first half of 1996, fully one-fourth of expected taxes never came in. Last year one-third of expected taxes went uncollected.

Enforcing tax laws in Russia is a dangerous occupation. "Le Figaro" reports that murders and beatings of special, heavily-armed tax police officers are frequent. "Le Figaro" quotes a tax police spokesman as saying: "There is a nearly invincible lobby against the tax department." He said attacks on the police are seldom punished. Of 50 cases investigated in Moscow in 1994, he said, only one resulted in a conviction.

The tax evasion problem isn't confined to Russia.

OMRI Ukraine analyst Chrystyna Lapychak tells RFE/RL an ordinary Ukrainian is likely to have an official job, whose wages are taxed, and one or more other undeclared sources of income. She estimates that only about 10 percent of real personal income in Ukraine is taxed.

Also, she said, many enterprises find it cheaper to pay bribes than to pay taxes. In Ukraine so far this year, Lapychak said, only about half of expected taxes have been collected. An estimated $1.7 million worth of taxes owed remains unpaid.

RFE/RL Belarussian correspondent Halina Naumchik, a former businesswoman, says that legislated taxes there are unrealistically high. If all the taxes required by law were paid, she says, they would amount to three-fourths the value of all the goods and services produced by private enterprise. She says tax evasion therefore is epidemic.

Vito Tanzi, director of the International Monetary Fund Fiscal Affairs Division, said that such tax problems are widespread among the republics of the former Soviet Union, where post-communist economies have been slow to develop.

"These countries don't have the tradition of direct tax payments," he said.

Governments accustomed under socialism to a few large monopoly enterprises don't know how to deal with the taxation of a lot of small private enterprises, he said. The average person on the street lacks confidence in government fiscal management and doesn't feel responsible for paying taxes, said Tanzi. He said that's why tax evasion is common. In addition, he said, governments have not yet learned how to cope with it.

Governments in the transition countries will have to reform their tax systems to increase public confidence.

"The people have to be convinced that their money is spent beneficially and that the taxation is neither unfair nor too high," he said.