Paul
Goble
Staunton, July 22 – Although Russians
now say they support Vladimir Putin’s assertive foreign policy, their attitude
may change if Moscow introduces new taxes and improving its tax collection
program, efforts that experts say will lead to a decline in their standard of
living and an increase in the size of the country’s shadow economy.
In “Novyye izvestiya” today,
journalist Sergey Putilov says that “in the nearest future, Russian citizens
and businesses will face a number of unwelcome tax innovations,” at least some
of which are needed to fill holes in the budget caused by sanctions and to pay
for refitting the Russian military (newizv.ru/economics/2014-07-22/205076-fiskalnaja-perestrojka.html).
The finance ministry wants the
country’s hard-pressed regional governments to be able to introduce a sales tax
of from three to five percent, the third time that Moscow has tried to
introduce such a tax. Mikhail Gorbachev
tried and failed to get this in 1991, and it was imposed between 1998 and 2004
before the Constitutional Court held it to be unconstitutional.
Because almost all regions are in
trouble and because Moscow would likely further reduce subsidies if this tax
were available to the regional governments, almost all of the country’s federal
subjects would likely feel compelled to impose the tax if they were allowed,
making what Moscow wants to present as a regional issue a Russia-wide one.
The introduction of such a tax would
not only undercut the promises that the Russian government has made but “lead
to a significant increase in prices and a sharp growth in inflation, and also
promote the further exit of business into the gray zone,” all things that will
exacerbate the country’s current economic and political problems.
But that is only one of the new tax
measures the finance ministry is considering, Putilov says, adding that it
hopes to raise the value added tax and the tax on individual incomes as
well. No decisions have been reached,
officials say, but they will need to be made by the fall if the taxes are to go
into effect in January of next year.
That these measures are being
discussed, the journalist says, reflects a dramatic change in government policy
on taxes reflecting Moscow’s desires to fill up its budgetary “holes” at a time
of international sanctions and capital flight. But the government has little
choice but to look for new sources of revenue.
“While the economy is stagnating,”
Putilov points out, “Russia has become involved in an arms race” unknown since
the end of the cold war. And the authorities
plan to spend 20 trillion rubles (600 billion US dollars) over the next seven
years to pay for that. The size of the
total is far more than the government’s current annual budget.
Because of the bookkeeping requirements
of such a measure, Moscow would have a hard time overseeing its imposition. The
size of the bureaucracy required would be enormous. Moreover, imposing the tax could have just
the opposite effect intended by driving businesses underground and leading them
not to pay taxes at all.
And experts add the entire plan is
unconstitutional and illegal, although those limitations may not in the end be
enough to stop this new effort. What
may, they suggest, is popular anger over the price rises such a tax would
entail and business anger about new taxes given the worsening economic situation.
But what makes the entire measure so
problematic on its face, Tamara Kasyanova, vice president of the Russian Club
of Financial Directors, says, is that “introducing this ‘Gorbachev tax’” as it
is universally known “just now in the midst of a crisis and growing inflation
is untimely,” quite possibly politically as well as economically.
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