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Strategies & Market Trends : Investment in Russia and Eastern Europe -- Ignore unavailable to you. Want to Upgrade?

To: djane who wrote (365)	7/20/1998 5:28:00 PM
From: djane	Read Replies (1) \| Respond to of 1301

President Increases Taxes by Decree moscowtimes.ru By Jeanne Whalen Staff Writer President Boris Yeltsin signed a flurry of government decrees Monday in an attempt to prove Russia's fiscal responsibility on the eve of a crucial vote by the International Monetary Fund to approve Russia's $17.1 billion bailout loan. The IMF was Monday night still considering the loan, which negotiators agreed on last week in an attempt to stave off a ruble devaluation and full-scale financial crisis. Since then, approval of the loan has been jeopardized by the State Duma's refusal last week to give full support to a fiscal austerity package that the IMF says is a crucial condition for the deal. In a television interview Sunday evening, Russian negotiator to the IMF Anatoly Chubais said he still believed there was an 80 percent chance the IMF would approve the credits, the first $5.6 billion of which would be disbursed immediately upon approval. But Chubais, who attended Monday's meeting in Washington, said closing the deal would be "hard" because of the opposition to increasing taxes in the Duma, parliament's lower house. IMF negotiations always turn on a country's ability to balance its budget and plug budget holes, Chubais said. "If you have convinced us you can plug that hole, then you have a meaningful financial policy. We can deal with your country and give you money in the belief that you will be able to return it," Chubais said, characterizing the fund's philosophy. Yeltsin's rapid-fire decrees on Monday and over the weekend went a long way toward filling budget shortfalls, at least on paper. In three days, the president passed a slew of revenue-raising measures including: doubling or quadrupling land tax rates; slapping an additional 3 percent duty on all imported goods; strengthening state control over the alcohol industry; setting the value-added tax at a standard 20 percent for all goods, ending a preferential 10 percent rate for some staple items; and mandating that VAT be paid when goods are delivered, instead of when they are paid for. Yeltsin also vetoed cuts in the profits tax and oil excise tax approved last week by the Duma. The Kremlin said that legislators had failed to match the cuts in those sectors with tax increases in others. The net result of the presidential decrees was still unclear. Adding up the effect of just three decrees -- those that cancelled the profits tax and excise tax cuts and that raised land taxes -- Russian officials Monday said that revenue for federal and regional budgets would be raised by about 50 billion rubles ($8 billion). The Duma's legislation last week would on balance have raised revenue by only 28 billion rubles, far short of the government's target of 102 billion rubles. Market analysts were pleased by the decrees but some questioned their legality. Russia's constitution allows the president to issue decrees on matters that don't conflict with existing laws. "If the legality of the decrees will not be questioned and if they are able to implement the decrees, then they'll probably do the job," said MFK Renaissance economist Roland Nash. "But those are two enormous ifs." Altering import duties appears to be fully within Yeltsin's power, as the executive branch controls customs duties. Raising duties on all imports by 3 percent is an easy way to collect extra cash without radically altering the consumer market, analysts said. Ending the low 10 percent rate of VAT may also not require legislative backing. Although the government cannot change VAT rates, it can determine what goods, if any, qualify for preferential VAT rates. The legal status and implementation of two other crucial decrees was not clear. Doubling and quadrupling the rates of land tax -- paid to municipal budgets by anyone owning or leasing land -- could raise up to 32 billion rubles, by some market estimates. But the rate hike will require the cooperation of countless local authorities, which may prove messy. Changes to the way VAT is collected could help shake Russia free of its barter-dominated economy. Requiring companies to pay VAT when they deliver goods instead of when they collect payment will force enterprises to collect cash from their customers, as barter transactions will no longer be exempt from taxation. "There is a lot of barter today that may be done to avoid taxes," said Petru Vaduva, head of equity research at MFK Renaissance. With the new legislation, "you make sure people will do their best to collect cash transactions." The decrees may have been enough to secure the IMF's credit approval, but the fund will be looking for marked improvement in Russia's finances in the coming months, and some questioned whether the Kremlin will succeed. "If the Duma had passed the measures it would have shown a general political will in the country to balance the tax system," said John-Paul Smith, Russian equities strategist with Morgan Stanley Dean Witter in London. "The fact that that didn't happen I take very negatively, because it shows that that will doesn't really exist outside a small circle in the government."The Duma won the Kremlin's praise last week when it approved a key 5 percent sales tax and several smaller components of the government's austerity plan such as withdrawal of subsidies to many families with children. But deputies quashed measures that would have hit their constituents hardest, including ending loopholes on income tax. Deputies also rejected the land tax and VAT tax changes. \| Homepage \| Today's Issue \| Next Article \| \| Home \| Today's Issue \| Business Journal \| Stock Market \| MT Out \| \| Archive \| Job Opportunities \| Classifieds \| \| Subscribe \| Advertiser Index \| The Moscow Times \| \| Independent Media \| The St.Petersburg Times \| Skate \| c copyright The Moscow Times 1998