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  •   Russia's Ever Mounting Back Taxes

    By Daniel Williams
    Washington Post Foreign Service
    Friday, December 26, 1997; Page A31

    MOSCOW—Alexei Anisimov said he knew he owed taxes, knew he was under investigation for tax evasion and yet, according to court reports, expected simply a verbal scolding when he faced a judge earlier this month.

    The surprise came when the judge sentenced him to six months in jail. As police slapped handcuffs on him, the unbelieving businessman repeated over and over: "I'll give back everything I owe. Come on, I have done nothing wrong!"

    According to Russian newspapers, Anisimov is the first Moscow businessman to be jailed for tax evasion in Russia's new capitalist era. The shock for him, and for Russian observers, grew out of a feeling that he is a very small fish in a big sea of offenders.

    "Many more cases like this are likely to be tried," wrote the respected business newspaper Kommersant, "because . . . it is much easier to convict and jail a dozen Anisimovs than to convict and jail evaders whose back taxes amount to billions of rubles."

    Russia is trying hard to convince itself, along with foreign financiers and investors, that it is serious about collecting taxes. It is a long-running and so far unfulfilled pledge.

    The government of President Boris Yeltsin has announced periodic crackdowns. Each time, with much fanfare, a company or individual is investigated, amounts are set, and some taxes get paid. Then the urgency passes and the tax evasion business goes on as usual.

    "I have to admit that spasmodic efforts in the past failed," said former economics minister Yevgeny Yasin.

    Just how long such elastic enforcement can be tolerated has become a hot issue. Top economic officials say that tax collection is the next frontier in Russia's ongoing reform process. Some estimates put the sum of uncollected taxes at $100 billion.

    The failure to collect taxes severely strains the resources of a government that repeatedly borrows money to make ends meet. A recent jump in interest rates on borrowing means that government expenses for next year already exceed expectations. Yeltsin will have to spend more on interest payments and less than envisioned on social welfare, infrastructure and wages for teachers, doctors, soldiers, bureaucrats and workers in state-run industries.

    "It must be made clear that if we are not able to collect taxes, we will have to scale down our educational system, our public health system and make many other sacrifices," Yasin said. "We must become a civilized state in which people pay taxes."

    Such tough talk has been heard before. Last spring, when delivering his state-of-the-nation speech, Yeltsin promised a crackdown. "Enough," he declared.

    Since then, tax collection has gone no better than the year before -- about 50 percent of the amount due in cash, according to officials in the president's office. That figure rises to about 60 percent if barter payments, negotiated with the government, are included.

    For example, fuel companies supply gasoline instead of rubles; airlines give out tickets instead of cash. But the government needs cash; it has been chronically late in paying state employees and is now rooting around for funds to pay an estimated $1 billion in back wages by Jan. 1.

    Despite this record, Russia and the International Monetary Fund are engaged in a kind of duet that keeps loans -- underwritten by governments that, for the most part, collect taxes efficiently -- flowing to Russia, which does not.

    Last spring, the IMF released part of a $10 billion, three-year loan to Russia even though the country had collected only 48 percent of taxes due in the first three months of the year. The release was based on a Russian promise to do better; when no improvement was seen, the IMF delayed the next $700 million installment in the fall.

    This month, Russia again pledged to step up collections. And again an IMF delegation, which visited Moscow last week, decided to recommend delivery of the $700 million. The obstacles to better collection are many, Russian experts say:

    A cozy relationship between big business and government that frequently results in low tax collection from some of Russia's wealthiest firms; a confusing network of debts between private companies and public utilities that creates a circle of nonpayment; and finally, terrific inventiveness on the part of businesses and individuals in exploiting tax loopholes.

    The evasion of Anisimov, the Moscow businessman, was unusual only because he seemed naive about it. Anisimov rented metal containers to itinerant merchants at a Moscow market, paying rent to the market and protection money to local racketeers, but no taxes to the government. Police rented a container from him in a sting operation; when he failed to pay taxes for 1996, they charged him with evasion.

    An accountant for a small shoe wholesaler -- who declined to be identified other than as T. -- sympathizes with Anisimov's plight, if not his tactics. She said her company would have to pay 75 percent of profits in taxes, including contributions to a public housing fund and pension fund. Beyond those payments are bribes paid to a krysha, literally, "roof" -- the armed thugs who take money to protect companies from other extortionists.

    Double accounting is T.'s main way of cheating the tax man. One set of books holds records of real expenses and sales; the other is fake, for the inspectors' eyes. The ruse is risky, in part because it demands cooperation from suppliers and buyers; they, too, must lie so that everyone's books more or less match up.

    "It's not a problem so far," T. said. "Buyers are also avoiding taxes, so they are happy to understate their sales to us, and we are happy to understate our purchases. And our customers are willing to let us underreport our sales to them, so that they can also claim lower retail sales."

    Russian press reports tell of the explosion in the number of dummy companies across Russia; once, tax inspectors found more than 4,000 of them with the same fake Moscow address. During one 18-month period, more than 600 corporations were registered under the name of a dead man -- and the owners did not file tax returns. Smaller tradespeople have simpler methods; they do everything in cash, with no receipts.

    Salaried employees of large companies have found ingenious ways of earning tax-free wages. This is done fully in cooperation with, and frequently at the instigation of, their employers -- who, by helping out, avoid paying payroll taxes and health and social benefits.

    For instance, an employee of a concern owned by a large bank is paid a small salary by the bank but also has received a million-dollar loan that is kept in an account at the same bank; the employee draws money from the loan in monthly installments as a salary supplement. Under current Russian law, it is all tax-free.

    "I suspect that the loan is nothing more than on paper," the employee said. "In any case, I don't ask any questions."

    Another scheme, outlined in Kommersant, is similar to the loan gambit, except that instead of giving loans, companies take out "insurance policies" on behalf of their employees. The policies pay a monthly sum, tax-free, to the employee, the insurance company earns a small percentage of the policy's value, and the employer avoids social security and other payroll taxes.

    A new tax code, pending in parliament, is supposed to curb such practices. The code would reduce tax rates and simplify procedures in the hope that the amount collected would increase and more than offset tax reductions.

    "When we talk about increasing collection of taxes in Russia, this means increasing taxation where there is under-collection," said Alexander Pochinok, head of Russia's State Tax Service.

    However, the State Duma, the lower house of Russia's legislature, has yet to pass the measure. Unless it is approved by the end of this year -- very unlikely, many say -- it cannot take effect for another year at least.

    In the meantime, the government is looking for other ways of estimating tax liability -- for instance, by looking at comparatively extravagant purchases by low-income people.

    Pochinok and his tax collectors also are trying to squeeze delinquent taxes out of some of the country's biggest companies -- a complex issue, as some of these firms are owed money by government enterprises, including the military and energy companies. Utilities almost always are strapped for cash, since many Russians pay no electric or water bills.

    It's a chicken-and-egg situation. Companies that are owed government money say they will not pay taxes until the government pays its debts to them. Nonetheless, Pochinok insists, many companies feign poverty. "We know who can pay," he said.

    © Copyright 1997 The Washington Post Company

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