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Russia: Tax Chief Targets Rich And Famous

Moscow, 5 June 1998 (RFE/RL) -- Russia's new tax chief Boris Fyodorov has announced plans to target the country's rich and famous in a bid to root out rampant tax evasion.

The State Tax Service will create a data base of 1,000 individuals whose income and spending will be scrutinized to ensure they are not dodging taxes.

A tax service statement issued yesterday said: "If the most famous people in the country observe the law, it will help spread the culture of paying taxes in Russia."

Russia is struggling to overcome a financial crisis created partly by poor tax collection, which has forced the government to rely on borrowing to plug budget holes. As part of its anti-crisis plan, the government has said it will slash spending and boost revenues, in part by nailing down major tax deadbeats.

While the plan has largely focused on 20 large corporate tax debtors, who have been ordered to pay up to 5 billion rubles ($800 million) by the end of the month, individuals are the next target.

The crackdown clearly bears the stamp of Fyodorov, who has advocated throwing individuals in jail as a way of scaring people into paying their taxes. Fyodorov, a former finance minister and staunch monetarist, has called for shifting the tax burden to individuals and away from Russia's mammoth companies, which are choking under the weight of a punitive tax system.

Only 4 million people out of a population of nearly 150 million paid personal income taxes last year. By contrast, Western governments rely mostly on individual income tax returns.

In a television interview earlier this week, Fyodorov said: "Individual tax payers must account for most of budget revenues... Obviously wages and income are being concealed."

It is unclear who will be on the list of what the tax service said would include "the most famous figures of the Russian state." But Russia's rich and famous pop stars are an obvious target.

Before taking over as tax chief, Fyodorov said the government should put Russia's leading pop singer Alla Pugacheva in jail if she hadn't paid all her taxes.

Pugacheva was among several dozen pop stars hauled in by former tax service chief Alexander Pochinok last year in a high-profile campaign to get Russia's wealthy stars to pay their tax bills. At the time, Pugacheva complained she was too poor to pay taxes, while others said the government should provide special exemptions for Russians in show business.

Fyodorov has said that, unlike his predecessors, he has the stomach to go after major tax dodgers. In his words: "Quite a few people in the tax service didn't have the political will to go after the big fish."

The new tax chief apparently has the backing of the government to do so. Prime Minister Sergei Kiriyenko said during a visit to Paris yesterday the treasury is "missing enormous sums" because individuals were evading taxes.

Critics, however, charge that Russia cannot be compared to Western countries, where levels of disposable income are much higher. In Russia, the average wage is around 120 dollars. But some believe a high-profile campaign against tax evaders could have a trickle down effect.

Alexander Chmelev, a tax partner at the law firm Baker & McKenzie, said: "The idea is to throw a couple of people in jail and the rest will quickly pay up." He said major tax evasion cases in the West targeting well-known figures such as U.S. hotelier Leona Helmsley and the father of tennis star Steffi Graf were aimed at reinforcing tax discipline.

According to a spokesman for the federal tax police 500 people were jailed for tax evasion last year. But most are quickly let off and none of the cases were high-profile. Under Russian law, individuals can be sentenced for up to five years for tax evasion. But Russia's new criminal code, currently making its way through the State Duma, provides for tougher punishment of tax crimes.

Others have their doubts. Scott Antel, a tax partner at the consulting firm Arthur Andersen, said: "I can't see that a high-level witch hunt is going to alter the psyche of the individual tax payer."

But some believe the campaign against Russia's rich and famous will have to target top officials in order to be truly effective. As one tax specialist put it: "The richest people happen to be in the government. If you want to fix the country, start at the top."