More Russians paying taxes, but...
By ERIC ENGLEMAN Associated Press Writer
MOSCOW — Like many Russians, Nellie dreaded her annual visit to the local tax inspectorate, with its long lines, surly officials, and Byzantine tax forms. But during her last visit, the 66-year-old grandmother, who supplements her meager pension by cleaning apartments, received a pleasant surprise. "My taxes were three times lower," she said. "They must have understood they were too high before." She's not alone. The government says more Russians are paying income tax, thanks to an innovation that would make American billionaire and presidential aspirant Steve Forbes proud. Last year, President Vladimir Putin took a page from Forbes' campaign book and introduced a flat tax on income. At 13 percent, it's the lowest rate in Europe — designed to draw more Russians out of the "shadow economy" and honest taxpayers of them. The results have been dramatic. Personal income tax revenue shot up nearly 47 percent last year, and tax revenue overall rose 50 percent, according to government figures. Early results from 2002 look even better. "We expect the number of people filling out income tax forms to increase substantially," said Dmitri Mikulich, deputy head of the Tax Ministry's individual income tax department. For a society with a long history of distrust in the government and a tradition of hiding cash at home, the taxpaying boom marks something of a revolution. But many analysts said it's far too early to declare complete victory. "So far, so good," said Alexander Morozov, a senior economist at the World Bank in Moscow. "There are signs that more people are paying personal income tax, but the process of moving from shadow to light has only just started. There's a long way to go." Small and medium-sized Russian businesses complain they still face a burdensome array of taxes that are impossible to fulfill. The worst culprit, many say, is the "social tax" on salaries, of up to 35.6 percent, covering contributions to state pension and medical funds. There's also a 5 percent sales tax, a 20 percent value added tax, a 5 percent advertising tax, a 2 percent property tax, a 1 percent road tax, plus a 24 percent tax on net profits after most other taxes, not to mention various registration fees. "There's a sea of taxes," said Slava, 40, who owns a travel agency in Moscow and declined to give his last name. "What other country in the world tries to take so much money?" Like many other business owners, Slava operates under a dual salary system. He pays his four employees in dollars, slipping them an envelope of cash every month, but keeps another set of records on his books, showing much lower wages in rubles — for the benefit of the tax inspector. The gap between real and "official" salaries is striking. Slava's employees make between $100 and $300 a month, while on paper they earn a mere 500 rubles to 1300 rubles ($16 to $42). Most tax inspectors suspect they're not being told the full story, but are willing to overlook their doubts for a "gift," like a bottle of liquor, Slava said with a shrug. Only through this sort of routine deception, he said, can he keep his business from going under. "If the government makes it a 13 percent tax for business, just like for individuals, then I'm ready to pay it, but right now there's no way," he said. "You'd have to turn over all your profits." Putin has promised to change that. Last month, he proposed a tax reform package for small business, that he called "no less revolutionary" than the flat tax on income. The reforms would eliminate many taxes for small businesses, and give them the option of paying a 20 percent tax on profit or an 8 percent tax on revenues. Morozov of the World Bank says it's important to make the taxpaying process less bureaucratic as well. "The tax burden is not just the amount of tax, but the time and effort it takes to fill out all the forms," he said. "Unless it's simplified, it will be difficult for businesses to stay afloat."