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Russia: Ministers Rescue Tax Code

Moscow, 23 October 1997 (RFE/RL) - Russian government ministers say they have agreed with lawmakers to find a compromise on the draft tax code in a last ditch attempt to halt the bill from being withdrawn.

President Boris Yeltsin raised fears Tuesday that the government's tax reform efforts were lost when he instructed the government to recall its much trumpeted tax code as part of a deal with lawmakers to avert a no-confidence vote in his Cabinet.

But Deputy Prime Minister Anatoly Chubais announced Wednesday that a joint commission composed of State Duma deputies and Federation Council members had agreed to work on the code -- not withdraw it. Prime Minister Viktor Chermomyrdin also said that revisions to the bill would be worked out at a commission composed of Cabinet, State Duma and Federation Council representatives.

Although Yeltsin must confirm the decision, the announcement dispelled fears that the government's tax reform efforts had been tossed aside. As one western tax specialist put it: "Tax reform is back on track." He said sending the code to a commission could actually speed up consideration of the bill.

However, Nikolai Shmelev, an economist with the Institute of Europe, said the government will be forced to yield to calls to reduce tax rates further and redistribute revenues from the federal center to the regions.

The government is basing its 1998 budget plan on the draft code, which it had hoped to implement by January 1. But it was clear even before Wednesday's wrangling that the tax bill would be delayed.

The opposition-dominated Duma passed the code in a first reading in June after heavy lobbying by the Kremlin. But since then, up to 4,000 amendments to the bill have been put forward, increasing the likelihood that the code would be reworked beyond recognition.

Yeltsin's order to recall the bill led to chaos and confusion in the Duma yesterday, as deputies debated whether the government could recall a bill that had already been passed in a first reading. Chernomyrdin insisted that, according to Duma procedures, deputies had to vote to reject the bill.

The code, a cornerstone of the government's economic reform efforts, attempts to lower the overall tax burden on the economy. But the Yabloko party, headed by Grigory Yavlinsky, has called on the government to rewrite the code from scratch, saying it does not go far enough to reduce tax rates.

Yabloko was the only faction to oppose the decision to send the code to a special commission and is likely to put up a fight when the amendments are debated. Yavlinsky demanded Wednesday the tax bill be withdrawn, or he would continue to insist on a no-confidence vote in the government and refuse to back the 1998 budget. He said the trilateral commission would be unable to cope with the thousands of amendments that have been put forward.

Despite its vocal criticism, Yabloko is too small to present a serious challenge to the government. Ministers may have more room to maneuver with communist deputies, who have failed to put forward to concrete tax reform proposals and have focused on increased budget spending.

Communist Party leader Gennady Zyuganov sounded a conciliatory tone Wednesday after announcing that deputies had formally withdrawn their no-confidence motion. He said "The most important thing that we have achieved in the last week is that we have laid down the foundation for a peaceful way out of the deep crisis the country is in."

Izvestia newspaper said in its Thursday edition that Yeltsin's concessions to the communists, including increased media coverage of the Duma and regular roundtable meetings with the Kremlin, were offered in exchange for the Duma swiftly passing the budget with few changes.

Negotiations on the 1998 budget are slowly making progress, with agreement reached on the broad economic targets. But deputies are still debating the sensitive issue of spending levels.