Desperate to Collect Taxes, Russia Can't

West insists that Moscow improve tax collection. But lack of progress has set off a chain of nonpayments.

Thousands of miles away from the current crisis in Moscow, the tax police recently swooped in on a major energy provider in Russia's Far East as part of a government campaign to get tough on evaders.

The police seized $1.6 million worth of houses and vehicles belonging to the company Dalenergo, which owed the state some $250 million in back taxes. But with some sheepish looks, they also delivered a pleading letter to Dalenergo's executives.

"The letter apologized that [the tax police] could not pay their bill to us - and requested that we not cut their power off," says Dalenergo spokesman Alexander Gelbakh.

Collecting more taxes is not only critical to the most basic functions of Russian civic life, it has also been one of the main demands of the International Monetary Fund, Russia's financial lifeline from the West.

But as Russia slides into economic meltdown, its much-vaunted bid to collect taxes is losing steam. Since President Boris Yeltsin inexplicably fired his Cabinet Aug. 23, the ruble has gone into free fall and banks lacking cash have frozen accounts. This has set off chains of nonpayments, which have made tax collection nearly an impossible task.

"If citizens cannot receive their money from their bank accounts, they cannot think about tax collection," says Nikolai Petrov, a political scientist at the Carnegie Moscow Center think tank. "The tax system's importance is now something of the past."

Only a couple of months ago the Russian government declared tax collection a top priority to placate foreign creditors, who had assembled $22.6 billion in rescue loans. They wanted to get hold of the incalculable millions of dollars that slip through the tax net because of corruption, inefficiency, and barter - and that account for an estimated 50 percent of business.

Boris Fyodorov, who is seen as one of the few men tough enough to crack down on evaders, was recently appointed as tax chief.

Now, as acting deputy prime minister, he doesn't have much time to concentrate on taxes. His hands are full trying to come up with a crisis plan to persuade the opposition to endorse Yeltsin's prime minister-designate, Viktor Chernomyrdin.

Ordinary people affected

Even if things settle down and the Communist-dominated Duma, the lower house of parliament, approves Mr. Chernomyrdin, it is questionable whether Mr. Fyodorov will remain in the job or be able to carry it out properly.

Chernomyrdin is closely aligned to the Gazprom gas monopoly, which owes millions of dollars in tax arrears and which was one of Fyodorov's pet targets. Analysts find it hard to imagine that Chernomyrdin would allow the company he once ran - as well as Russia's powerful oligarchs - to be under the tax man's scrutiny.

And even if the tax crackdown were to continue, it is ordinary people who would suffer most.

Gazprom threatened to cut services to provincial energy suppliers if they don't pay their debts. If that happened, the first to suffer would be civilian companies and individuals, energy officials say. "The military owes a lot of money here. But we cannot cut off energy supplies to strategic installations such as nuclear ones," says a senior energy official from the provincial city of Khabarovsk.

On the Far East island of Sakhalin, market vendors began a revolt against plans by Sakhalin Gov. Igor Farkhutdinov to require market vendors to buy electronic counting devices at their own expense. The machines would provide receipts for tax purposes.

Governor Farkhutdinov says he imposed the measure because of pressure from Moscow to pay Sakhalin's debts. He targeted street traders, estimating that they evaded taxes by as much as $3 million a year.

"The federal and regional government policy is to shift more tax burden from producers to consumers. We want to control trade by introducing these devices."

Bad enough

This reasoning upsets To Ke Mi, who sells shrimp and dried chili peppers from a wooden stall in Yuzhno-Sakhalinsk. She earns $4.50 a day and has never paid taxes. And she says she is better off not working if the tax man comes.

"I live off tomatoes and cucumbers grown in my garden," she says. "There's not a kopeck left over to pay taxes."

A group of stall owners mobilizing Sakhalin's 4,000 vendors to revolt closed down the town's 12 markets in a July 27 strike.

"The governor is violating civil rights by imposing requirements which can not be realistically fulfilled," says protest leader Nikolai Kivchun.

Even before paying taxes, life is bad enough in Vladivostok, a port of 700,000 where lack of salary payments has provoked strikes by defense workers, energy employees, coal miners, and ambulance drivers in recent months.

Water is rationed because of bad rains. Electricity is also restricted because Dalenergo has not received payments worth $666 million from clients, including commercial companies, the military, and the municipal government. Power cuts affect the telephone service and limit hot water even in fancy hotels.

Especially with the current economic crisis, it is ridiculous to expect Dalenergo to pay back taxes, says Alexander Zankov, the No. 2 man at the regional energy department.

"How can you collect taxes from companies which do not produce and cannot pay their workers?" he asks.

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