Russia's tax pax will bear little fruit

By bne IntelliNews March 2, 2007

Tim Gosling in Moscow -

Over a decade in the making, a tax amnesty finally kicked off in Russia on Thursday. While the scheme is due to run a full two years to the end of 2008, few believe that any significant effect will be felt.

Various officials have called for such an amnesty over the last 10 years, but it was only when President Vladimir Putin demanded action in 2005 that the gears began to turn. The tax amnesty bill was adopted in December, but took three months to come into force. Finance Ministry officials claim this was to allow more time to design the necessary information campaign explaining the advantages of tax repentance to both companies and individuals. However, financial authorities admit this campaign began only on the same day that the amnesty was launched.

Accountants were far quicker out of the blocks, announcing before the big day that they wouldn't recommend tax dodgers rush to repent. Indeed it appears unlikely that this is the authority's aim anyway.

Destined to fail

Most opinion suggests the response will be limited to those 1,500 or so that are already facing charges and fancy a free get-out-of-jail card. The bad news for former-Yukos executives is that the amnesty won't extend to those already convicted for tax evasion.

Parties with cash stashed away are invited to decide independently the total they concealed from authorities up to the end of 2005 and then pay 13% into a specially set up treasury account – so bypassing contact with the Federal Tax Agency.

"Given that the rate is the same as the standard individual income tax rate, it doesn't make sense," says Alfa Bank analyst Olga Naydenova. "Even the Finance Ministry doesn't expect any substantial impact."

However, it's not just that the move appears to offer few benefits to those who might like to come clean. While authorities have been at pains to assure people that they won't be able to use information on transfers made into the treasury account to prosecute payers for the cash they are connected to, there's little if any incentive to stick one's head above the parapet.

Naydenova points out that, "nobody guarantees that information on how much an individual cleared in the course of the amnesty will not be used for determining whose current activities should be investigated."

The Russian daily Kommersant quoted tax consultant Sergey Pepelyaev from Pepelyaev, Goltsblat & Partners as suggesting that the scheme is actually for those who are already facing prosecution for tax fraud.

Another analyst remarked that the amnesty appears designed to open the way for authorities to cherry pick those they would like to prosecute – and presumably, therefore, let off those who they’re not so keen to catch out.

Assuming the standard goals of a tax amnesty are to recoup substantial outstanding sums and to convince significant numbers to change their ways by granting them a clean slate, the concensus is that the Russian version is destined to fail.

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