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Russia: Cabinet Shake-Up Casts Doubt On Tax Code

Moscow, 26 November 19967 (RFE/RL) --The departure of Sergei Shatalov, author of Russia's controversial tax code, from government could ease passage of tax reforms in the State Duma, but analysts say the move casts further doubts on the fate of the code itself.

Russia's new Finance Minister Mikhail Zadornov, a former member of the liberal-reformist Yabloko faction in the Duma, sacked Shatalov from his post as Deputy Finance Minister two days ago, saying Duma deputies had developed what he called an "allergy" to him. Mikhail Motorin, the head of the Duma's Budget Committee office, is expected to replace Shatalov to oversee the government's tax reform effort.

Alexander Ustinov, a tax specialist at the Finance Ministry's Expert Group, said Zadornov and Motorin's extensive contacts in the Duma's budget committee would make it easier for them to reach a compromise on tax reforms.

The government's draft tax code proposes to slash the number of taxes from around 200 to just 30, simplifying the system in an effort to discourage tax evasion. But the bill has been dealt several serious set-backs. The Duma passed the government's tax code in a first reading in June, but decided to submit the bill to another first reading in early February, calling for alternatives to be drawn up in the meantime.

With Zadornov at the helm of the Finance Ministry, most analysts expect changes to the way the government pursues tax reform. A vocal critic of the code during his tenure as Duma Budget Committee chair, Zadornov is expected to advocate further reductions in the tax burden. He is also likely to pay greater attention to the rights of tax payers, something Yabloko deputies had complained was overlooked in previous proposals.

Ustinov said that while there would be more emphasis on cutting the tax burden, Zadornov would also be forced to come up with proposals to meet revenue targets.

If Motorin, a close ally of Zadornov, is confirmed as the government's point man on tax reform, he is likely to push for a more gradual approach to overhauling the tax system, which could mean the tax code is dead.

Rory MacFarquhar of the Russian-European Center for Economic Policy, noted that Motorin "is of the school of thought that the last thing Russia needs now is a huge new tax code."

Motorin is widely viewed as a strong supporter of tax reform, but is believed to favor overhauling the system through piecemeal legislation. He may be welcomed by some tax experts who have expressed concern about the confusion that could be created if a new tax code is rushed through.

As one tax expert put it: "Tax reform is more alive than ever. The question is not whether the tax code will survive, but what form it will take."

With Shatalov gone, the government has lost its chief advocate of rapid tax reform, considered essential if poor tax collection rates are to improve. The government has collected only 52 percent of targeted tax revenues in the first nine months of the year, leading the International Monetary Fund to suspend payments under a $10 billion loan to Russia.

The head of the State Tax Service, Alexander Pochinok, has said that it will be difficult for the government to meet the tax revenue targets outlined in the 1998 budget given current collection rates. He said earlier this week that the 1998 budget calls for 18 trillion rubles in tax revenues a month, while authorities collected only 12 trillion in October.

Several economists have said that the revenue projections outlined in the draft 1998 budget are unrealistic. With uncertainty surrounding the tax code, it could mean that Russia will face another year of messy public finances in 1998.