Why '1040' Tax Form Is 13 Pages Long in Russia

Tatiana Smirnova, head of the tax-collection center in Moscow's central district, remembers when taxation was easy.

"It used to be there were no taxes. There were just payments to the state budget," she says. During Communist rule, all individuals worked for the state, tax payments were small - and were automatically deducted from workers' paychecks.

These days, things are more complicated.

Keeping track of the various ways in which Russians make a living in the post-Soviet era - and getting them to pay taxes on what they earn - is a difficult job.

The Russian government estimates that 28 percent of its $450 billion economy operates underground, although reliable outside estimates range up to 40 percent. And the government admits it collects only half of the taxes it is owed. This has caused chaos in the state budget, and has jeopardized Russia's standing with international lending institutions such as the International Monetary Fund.

To help Ms. Smirnova and her fellow tax collectors along in their work, the Russian Tax Service has introduced a new 13-page personal income-tax form.

The lengthy "Declaration of Income for 1997," expanded from its five-page predecessor, quickly became an object of ridicule in the Russian press. One daily apologized to readers for its cruelty in making a reporter try to fill out the document.

Paying taxes a new experience

For many in Russia, filling out an income-tax form has yet to become the annual routine it is in other countries.

"There are a lot of uncollected taxes resulting not only from outright evasion, but also from the fact that there is no solid history here of individuals ever having to file a tax return," says Peter Reinhardt, a tax consultant with the Ernst & Young accounting firm in Moscow.

Evidently anticipating that some Russians might be intimidated by the stack of rose-colored paper, the Tax Service has announced plans to open 12,000 "consultation points" across the country.

Olga Timofeyeva, one of Smirnova's tax inspectors, insists, "It's possible to understand it," and begins a page-by-page explanation.

"Page B is for deductions. Page V is for decoding said deductions, and for royalties earned by book authors, scientists, and artists.

"No wait, that's page G," says Ms. Timofeyeva, catching herself. And so it continues through the rest of the form.

There are some within the Tax Service who have their doubts, however.

"They are making life difficult for your average plumber or car mechanic," said Dmitri Chernik, head of the Moscow Tax Inspectorate, at a press conference.

Asked his opinion of the new form, Mr. Chernik gave it a not-quite-ringing endorsement. "I haven't seen a decent tax declaration form yet, but this new one is less bad than the ones that preceded it."

Corporations the biggest culprits

In actuality, little of the blame falls to the wildcat taxi drivers and small-time landlords who typically do not declare their earnings. The lion's share of unpaid taxes here is owed by large corporate entities, many of which are nominally controlled by the Russian government.

But tax authorities, under constant pressure from President Boris Yeltsin, are scrambling to get any tax revenue they can. The new, highly-detailed tax form represents one effort to take in every ruble possible. But just how successful the campaign will be is open to debate.

"Nobody pays their taxes," says Dima, not his real name, when asked why he doesn't pay taxes on the money he earns moonlighting as an English teacher.

"If you pay your taxes, you will have nothing left in the end," he says.

Officials say such widespread attitudes are changing, thanks to an ongoing public-relations campaign. Last year, billboards around Moscow carried the reminder, "Avoid anxiety. Pay your taxes." But the effect was probably dampened by the fact that the punishment for income-tax evasion in Russia is often negligible.

"We've only had one client that was nabbed for tax evasion," says one private tax consultant. "He was supposed to pay taxes in April, but he decided to pay in December instead. All he had to do was pay the amount owed."

Meanwhile, the Russian government continues to promise a new streamlined tax code that would make this year's form obsolete. This doesn't seem to worry Yevgeny Bushmin, deputy head of the Russian tax service.

"We can make a new one," he said cheerfully.

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