Accessibility links

Breaking News

Russia: Duma Approves Tax Code, But Demands Revisions

Moscow, 20 June 1997 (RFE/RL) -- Russia's lower house of parliament yesterday approved the government's proposed tax code, but the road towards a simplified tax system and orderly finances will be long and bumpy.

The State Duma voted 245 to 84 to pass the tax code in its first reading, but called for significant amendments to the bill before a second vote is taken in the Autumn. It called for a revised tax code to be submitted by September 15. A second vote is scheduled for November 1.

President Boris Yeltsin called the vote a "victory" and said it would boost investment in Russia's depressed economy.

The vote took cynics by surprise. Tax reform has been bogged down for years in Russia, prompting many commentators to predict that the Duma would block the government's efforts to overhaul the country's byzantine tax system.

But the government has pressed hard for the code to be passed this year. First Deputy Prime Minister Anatoly Chubais had demanded that deputies pass the bill in its first reading before they break for summer recess next week. Rumors that Yeltsin was considering disbanding the opposition-dominated Duma if the bill was not passed apparently persuaded deputies to give their initial approval to the reforms.

But the bill is likely to undergo major changes before it is approved and signed into law. In its current form, the code slashes the number of taxes from 200 to about 30, reduces the overall tax burden by about 20 percent, and eliminates loopholes that are costing the government desperately needed revenue.

The government is pressing for a new tax code as a way to resolve the state's revenue crunch, which has been blamed on massive tax evasion. It hopes that a new streamlined system will bring more people into the system and boost collection efforts, ultimately helping to end the government's massive wage and pension arrears crisis.

The Duma's Budget Committee, however, has criticized the bill for failing to protect the average taxpayer from the vagaries of the tax authorities, which are accused of corruption and applying tax laws in an arbitrary manner. It has also called for greater reductions of the tax burden on industry and individuals.

Grigory Yavlinsky, leader of the reformist Yabloko faction, denounced the tax code, saying it looked like it had been written by, in his words, "some kind of Robinson Crusoe" who had knew little about Russia's economic needs. The only factions to vote against the tax code were Yabloko and the Popular Rule bloc.

The government's greatest concern now is trying to ensure that the tax package remains coherent as it travels through the chaotic committee stage. Deputy Finance Minister Sergei Shatalov, who has been working on the tax code for years, has called the Duma a "black box" where legislative proposals enter in one form and exit in another. He has vowed to defend his brainchild in its current form.

The government is also counting on early passage of the tax code in order to base the 1998 budget on the new system. However, the head of Russia's tax authorities, Alexander Pochinok, said this week that he did not expect the tax code to be implemented overnight. He said there would need to be a transitional period so that taxpayers and inspectors could acquaint themselves with the new rules.

Attempts to rush the tax code through the Duma and into law have caused great anxiety among tax experts, who warn that just dropping the 400-page code on everyone's desk at the start of the year will merely cause havoc for businesses and the economy as a whole.

Some commentators have noted that the new code will not necessarily spark a flood of foreign investment, which has been held back partly because of Russia's opaque tax system.

As one western tax expert put it: "It will take several years before we get guidance on how this tax code will be implemented. Investors don't like turmoil. If they can't make economic decisions with a degree of certainty, they just won't come here."