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Izvestiya: 'Exaggeration' To Claim Russian Tax Reform a Flop

CEP20021212000132 Moscow Izvestiya in Russian 10 Dec 02

[Article by Semen Novoprudskiy: "Good Interest Is Dead Interest" -- taken from HTML version of source provided by ISP]

[FBIS Translated Text]
That [reference to headline] could be the slogan for any successful tax reform.  Interest (or, rather, specific tax rates) should remain dead (or, rather, unchanged) for as long as possible.  And taxes should be collected as fully as possible and should cover a considerable proportion of the state's necessary expenditure (more than the 30 percent of GDP represented by tax collected in Russia).  There has so far been no successful tax reform in Russia -- and that was honestly recognized by the government in the course of its regular Thursday session last week.  Its future actions in this sphere have given rise to diametrically opposed interpretations in the mass media -- from convictions that the cabinet is prepared to continue cutting the tax burden contrary to the president's view (Putin has repeatedly stated in public that the reserves for tax-cutting have been exhausted in the current economic situation) to confidence that the relative tax free-for-all will be coming to an end.

   In this instance the truth is to be found not even in the middle but in quite another place entirely.  Strictly speaking, there are currently no weighty grounds for believing that the government will continue to cut taxes.  The economic situation in 2003 -- the presidential election campaign and the peak of our foreign-debt payments -- will not be conducive to a further easing of the financial burden.  On the other hand, the need to increase the pace of economic growth forces us to think about a comprehensive reduction in the tax burden on business.  Nonetheless, the main task of tax reform is not a matter of cutting or raising taxes.

   The problem is not so much the rates of specific taxes as it is the tax system and the goals of that system.  Russia has proclaimed a policy of creating a social state.  If we already had such a state, if Russia were a kind of Sweden, for instance, there would be some point in having high tax rates.  Because the main aim of a social state is to spend money on ensuring the most comfortable existence possible for its citizens.  Consequently, the Swedes pay income tax of 72 percent and do not grumble about it unduly.  But there is no social state in Russia, and in order to create one our economy will have to grow for many, many years by many, many percentage points a year.  And if your goal is economic growth, taxes in general and as a whole should not be too high.

   In Russia the outlook for tax reform is complicated by the country's territorial composition.  The federal state with its three levels of budgets -- federal, regional, and municipal -- still lacks any legally ratified concept of interbudgetary relations.  Attempts to reach agreement on distributing revenues between the center and the regions strategically -- for years to come -- have so far yielded no result.  And tax reform has substantially altered the composition of taxes and the mechanisms for distributing them between the three levels of budgets.  Frankly, it has been chaotic.

   Finally, the government has committed one other conceptual inaccuracy in its approach toward tax reform.  The claim that the lower the rate of tax the better people will pay was taken as axiomatic.  The level of entrepreneurs' distrust in the state is so high that it would be naive to expect any immediate abandonment of "under-the-counter" schemes for conducting business following the first tax cuts.

   The most important thing for the government now is to think not about cutting or raising taxes but about creating a relatively well-organized tax system and preserving it for as long as possible.  This is no longer an arithmetical but an algebraic task -- an equation with many unknowns.  The size of the state's social obligations, allowances for the dynamically changing conditions in raw-materials markets, and mechanisms for raising investment should all be taken into account in implementing tax reform.

   Following the government session last Thursday many people rushed to announce the failure of tax reform in Russia.  For the time being this is a considerable exaggeration.  Too little time has passed.  The task of shaping organic fiscal proportions in the economy is too difficult -- it is far more difficult than simply deregulating prices or permitting the purchase and sale of foreign exchange.

   But, at any rate, unless an effective tax system is created, Russia will be unable to safeguard itself against a slide into the economic abyss or to bring itself any closer to the living standards enjoyed by the world's leading countries -- that is even more important than reform of the natural monopolies or the banks.  We will nonetheless have to look for "good" interest rates and make them "dead."

[Description of Source: Moscow Izvestiya in Russian -- One of Russia's most prominent dailies; controlled by Vladimir Potanin although Lukoil owns a minority share.]



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Russian Duma Schedules Second Reading of Energy Reform Bills for 18 Dec

CEP20021210000427 Moscow ITAR-TASS in English 1842 GMT 10 Dec 02

[FBIS Transcribed Text]

  By Diana Rudakova
  MOSCOW, December 10 (Itar-Tass) - Russia's State Duma, the lower house of parliament, has scheduled the second reading of a government-proposed package of bills on power industry reform for December 18, Oleg Kovalyov, chairman of the Duma committee for parliamentary procedure, told reporters Tuesday.
  Members of parliament have introduced about 2,000 amendments to the package since the approval of government-sponsored concept of energy sector reform, and the lower house and government officials have come to agreement on most of them by now, Kovalyov said.
  "The amended versions of the bills take account of virtually all proposals and I do not see any major problems with their endorsement," he said.
  The revised texts of the bills contain guarantees of interests of small producers and distributors of electric power and specify procedures of property redistribution in the energy sector, Kovalyov said.
  The deadline by which the most revolutionary changes will take effect has been moved to 2005, he indicated. Simultaneously with it, the government will keep in effect provisions on regulating the electricity rates and state control over the activity of natural monopolies.
  Kovalyov hopes that the MPs will pass the package. "I do not see any barriers to it," he said, adding that the centrist majority in the house was ready to have a solidarity vote in favor of the bills.
[Description of Source: Moscow ITAR-TASS in English -- main government information agency]


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