Ways of making Russians pay

DEATH in Russia can be uncommonly certain; not so taxes, which are still widely avoided. This year the government pumped up its summer tax receipts by taking IOUS instead of cash. But when that scheme had run its course in September, revenues collapsed again (see chart). Exasperated, the IMF said it would suspend monthly payments to Russia under a three-year $10.2 billion loan facility until tax collection improved. The Duma, the lower house of Russia's parliament, also complained threatening to block adoption of a budget for 1997. It saw low rates of tax collection as a threat to high levels of public spending.

The government has responded by setting up a new "emergency commission" to frighten big firms into paying overdue tax by threatening their directors with jail or bankruptcy. The commission is known - by its Russian initials - as the "VChK”, which sounds eerily like the acronym for the Bolshevik secret police force - the Cheka - that evolved into the KGB. The nominal boss of the new VChK is the prime minister. Viktor Chernomyrdin. But its credibility turns on its tough deputy head, Anatoly Chubais, the Kremlin chief of staff.

So far the commission has identified three firms as ripe for bankruptcy. Together they owe less than $100m.The biggest, Moskvich, has long kept its Moscow car factory idle for want of working capital. But conspicuously absent from the commission's hit-list have been bigger and better-known tax-debtors, including Gazprom, the state gas monopoly, and Avtovaz, a car maker. Gazprom has huge political clout: its old boss was Mr Chernomyrdin. Avtovaz employs too many people to be allowed to collapse into bankruptcy, despite owing the government a good $533m.

Yet Russia's most taxing problem is nоt one of persuading registered taxpayers to cough up. It is one of persuading firms and individuals to register for taxes in the first place. Nobody knows the size of Russia's "black" economy, but it is huge and kept that way by a common view of the tax system as a Byzantine and arbitrary place into which prudent citizens do not stray.

Marginal rates for the main sons of taxes may look tolerable. The top rate for profits tax and income tax is 35% in each case. Value-added tax is levied at 20%. Bui with 150 big and small taxes on the statute books, and inflexible rules about allowances and deductions, a firm can end up paying more in taxes than it earns. For a small firm, even the reporting requirements are barely acceptable: a full set of accounts must be presented to the local tax office each quarter.

Nor do taxpayers get much for then money. Government revenues in 1995 consumed 27% of GDP. Pension and social-security contributions took another 8%. But many Russian public services, in­cluding the provision of law and order are dismal. Government department owe $10 billion in unpaid wages and overdue debts. Inefficiency, corruption and stupidity have led to vast sums being wasted on industry and households, 01 vanishing into the military establishment. Weak tax collection has at lens forced the government to took for econo­mies, even if these are rarely chosen wisely. The worst result of the current tax panic would be if it improved revenue collection and so encouraged Russia'.' federal and local governments to spend even more money just as badly.

GDP – Gross Domestic Product

IMF – International Monetary Fond

VAT – Value-Added Tax (НДС)