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Russia: Credit Hinges On Improved Tax Collection

Prague, 11 November 1997(RFE/RL) -- The International Monetary Fund's deputy managing director, Stanley Fischer, says a Russian plan to improve tax collection could bring about the disbursement of a $700 million IMF loan tranche as soon as February.

Fischer made the comment yesterday during a visit to Moscow. He said the IMF would evaluate Russia's progress in overhauling its financial and tax system during February. If fresh tax proposals are implemented and other recent measures prove to be satisfactory, Fischer said the board would vote to restart payments of credits to Moscow.

The IMF board of directors voted two weeks ago to delay payment of the latest $700 million installment, which is part of a $10 billion loan being made to Russia over three years. The delay came after a team of IMF experts left Moscow saying that the problem of collecting sufficient tax revenues has not been resolved.

In Moscow yesterday, Fischer said that Russia's central bank and government already have started to make changes necessary to meet the IMF's loan criteria. He praised recent moves, saying they would help stabilize the ruble and Russia's financial system.

Tax collection has been a major economic problem for the government in Moscow in recent years. During the first ten months of this year, the government has managed to collect only two-thirds of projected budget revenues.

But Fischer says the Russian government has considered the issue of tax collection shortfalls very seriously and, in his words, "has moved very rapidly, more rapidly than we expected."

Fischer explained that a decree issued by President Boris Yeltsin on Saturday will improve the situation by bringing the practice of so-called tax offsets to an end.

Tax offsets occur when the government cancels the tax arrears of a firm against the debts that the government owes to the enterprise. Although no money changes hands under such transactions, Russian tax offsets have often been recorded as taxes that were collected.

Analysts say this appears to have been one key sticking point between Moscow and the IMF. Yeltsin's decree means the government plans to insist on collected taxes in cash next year.

Meanwhile, Fischer also is praising a government plan to develop a centralized treasury that would coordinate taxes and spending by all ministries.

Fischer says a new tax code that the government is trying to push through the legislature by the end of this year would stimulate economic activity by simplifying the entire tax process.

The growth of Russian businesses are still being hampered by the complicated tax system. In some industries, like construction, the effective tax rates can exceed 90 percent.

The European Bank for Reconstruction and Development says this has led to widespread tax cheating because many firms could otherwise not survive under such a system. This means that Russia's gray economy has been growing in a way that brings nothing to the state budget.

Nevertheless, the new tax code still must be approved in three separate readings in the Duma before it becomes law.

Duma Speaker Gennady Seleznyov said today that the lower house of parliament would consider the package of tax bills, along with a draft 1998 budget, on Thursday. Seleznyov said the Duma's budget committee had only yesterday finished considering the bills, which now must be sent to the various parliamentary factions.

Seleznyov said Duma representatives on a trilateral commission now think the present form of the 1998 budget can be approved on first reading. The government maintains that the budget plan will work only if the tax changes also are approved by the legislature.