RUSSIAN FEDERATION COUNTRY STUDY
A PUBLIC FINANCE PERSPECTIVE
Ryan Grace
Dmitri Maslitchenko
David Lamp
Political Background
The separation of powers which existed under the Soviet constitution was
essentially a myth. A Russian accurately characterized the relationships
that existed between party, state and society as, …The state absorbed
the society, the Party absorbed the state, and the Party appartchiks,
the nomenclature under the totalitarian leadership of the
Secretary-General absorbed the Party.” Both legislative and judicial
branches served as rubber stamps” to the Presidium of the Supreme Soviet
which unlike the Supreme Soviet itself was constantly in session. The
development of political reform in the late 1980s weakened the party’s
control over the reigns of power. The devolution of power from the
Presidium occurred through the creation of the office of the President
which received the executive powers while the legislative powers were
assigned to Congress of Peoples Deputies. The judicial branch also
achieved higher visibility during the late Soviet period through the
creation of the Committee on Constitutional Supervision. The Soviet
Union’s collapse in 1992 introduced radical changes into all aspects of
Russian society. Russia has little experience with democracy in any
form. Without a strong democratic tradition, it should not be unexpected
that instability would develop in all aspects of Russian life. The role
of governmental finance in post-Soviet society is no exception.
Competing explanations exist for Russia’s travails but a shared trait of
many them is the distribution of power at the federal level and the
relationship between the federal and sub-national levels of government.
Political problems did not take long to develop in the Russian
Federation after the USSR’s dissolution. At the federal level, the
creation of the present constitution is one cause of the instability
which plagues Russia today. After winning a national referendum on
August 15, 1993 in which the electorate was asked to endorse the
Yeltsin’s reform policy, he convened a constitutional assembly to ratify
his version of the new constitution. Three drafts were in contention to
replace the constitution under which the Soviet Union was nominally
ruled. Other than Yeltsin’s constitution which became the one
implemented, the two other variants were the communist draft which
advocated a strong Presidium of the Supreme Soviet with a chairman who
had similar powers to the position of General Secretary during the
Soviet period and the Rumyanstev draft which contained plans to restrict
executive power and grant the legislative body wide powers. Yeltsin’s
draft advocated the exact opposite of the aforementioned plans with wide
powers to the executive and minimal power delegated to the legislative.
After the Duma rejected Yeltsin’s order to dissolve, he ordered military
troops to forcefully evacuate the building–which they did by shelling
it. Briefly, the president is the protector of the constitution, human
rights, and civil liberty. In order to protect the constitution and the
aforementioned rights, the constitution grants the president wide
injunctive and declarative powers. The former powers consist of the
president’s ability to use “conciliation procedures to resolve disputes
between the federal government and the governments of the constituent
subjects and disputes between the various subjects of the federation.” A
three stage procedure exists for the adjudication of disputes but his
ability to suspend legislation after it is submitted to the appropriate
court” which he deems to be in violation of the constitution is
considered by many as inappropriate for a fledgling democracy. The
President also has the power to issue decrees and orders which are
superior to the laws of the government as long as the decree or order
does not violate the constitution. Further, the president has the
ability to appoint important member of his government without consent
for the Duma and has sole power to appoint and remove the command
structure of the Armed Forces. In regards to the legislature, the
president has the ability to dissolve the Duma if it passes two
no-confidence vote in the Russian government within three months of each
other and if it rejects three presidential nominee for Chairman of the
Russian government. Although there are limitations of the president’s
ability to dissolve the Duma, it remains a potential weapon against a
contentious parliament that affects every aspect of public finance.
The power of the legislative and judicial branch are limited in relation
to the executive. Russia’s judicial system consists of a several court
systems that have different spheres of federal/national jurisdiction.”
The most visible court is the Constitutional Court which has the right
to review the constitutionally of all federal laws, presidential orders
and degrees, legislation of government, and unratified treaties.
Challenges to the aforementioned areas must be brought by individuals
with standing. Although the Constitutional Court’s power seems vast, the
president’s expansive powers and lack of civil relations between the
different branches makes the Court’s utilization of this power suspect.
Federal law and federal constitution laws are the two types of laws
which exist in the Russian Federation. The latter is considered superior
to federal laws. The procedure for enactment differ in each case. Once a
bill is passed it must presented to the president within five days of
the passage by the parliament. The president then has fourteen days to
reject the law. In order to veto the federal law, a two-thirds majority
must be gained in both parts of the legislative assembly. In the case of
federal constitutional law, three quarters of the Federation Council and
two thirds of the Duma must approve it for enactment. The constitution
does not describe any right for the president to veto federal
constitutional laws. According to Article 106 of the Russian
Constitution, laws in regard to the following area must be voted upon by
the Federation Council: The federal budget, federal taxes and levies,
foreign currencies, custom regulation, and currency issuance.
Budgeting
Recently, the Duma rejected the government’s first draft of the budget.
Deputies were divided over the size of the projected federal budget
deficit, which was set at 95.4 trillion rubles or 3.5 percent of GNP.
When the budget is rejected by the Duma, the government has 20 days to
revise and re-submit the budget. If differences exist between the
government’s proposed budget and the Duma’s, an option exists to create
a committee to reconcile their disagreements. The Duma rejected the
government’s proposed 1997 budget in October 1996 and did not opt
initially for such a commission. If no budget agreement is reached,
parliament would be forced to pass monthly or quarterly budgets which
would cause confusion throughout the economy. Since the initial
rejection however, a reconciliation commission (in which both houses of
parliament and the government are represented), has been working on a
new version. The reconciliation commission is due to have a final
meeting on Wednesday, with the Duma giving the budget a new first
reading on November 20 or 21. There is no legal framework to cover the
failure to pass the budget, but parliament has faced the problem every
year of Russia’s independence except 1996 and has in the past approved
temporary budgets.
The work of the reconciliation commission is being drawn out because
neither the communist majority in parliament nor the government wants to
take responsibility for making a decision on the budget. Russia is
trying to keep to a small deficit in 1997 under pressure from the
International Monetary Fund, but the Duma is eager to increase budget
spending to a starved economy. Reform minded deputies want a lower
budget deficit to achieve lower credit rates–which they say are vital
for economic growth but which are kept high through heavy government
borrowing. The dilemma is that the communists in the parliament want to
increase spending and as a majority they can block implementation of any
budget bill.
Taxation
Russia’s tax system is an exercise in frustration for both Russians and
foreigners. The problem arises because it seems that many taxes spring
out of the blue and carry heavy retroactive penalties” which are often
three times the tax amount due. Russian tax reform is difficult now
because the government desperately needs money and has little room to
maneuver since revenues are static and low. The budget take, both
federal and regional, came in at just 27.3 percent of GDP, compared to
50 percent in the Czech Republic and 47.7% in Poland Russia’s budget
deficit has been narrowed in recent years, but this only been achieved
by cutting back on expenditures in real terms, almost 50 percent from
1993 to 1995.
Like the United States, Russia has a three-tiered system of taxation.
Federal taxes are enforced by Parliament, regional taxes enforced by the
regional councils, and local taxes enforced by the local authorities.
Under the existing system, very little coordination can be found between
the three levels of government which causes serious tax policy problems.
In a 1993 decree, regional and local authorities were given the power to
decide on types and sizes of taxes for their jurisdictions. The hope was
that authorities at each level, being responsible to its citizens, would
act within reasonable limits. Local authorities, seeing a way to
increase revenue, devised more complicated and exotic taxes. There are
150 locally imposed taxes within the Federation . They were competing
who would invent the more interesting taxes at their respective
levels–for example a tax on grazing cattle.
Tax Code
The Russian tax system is very complicated. The first two sections of
the new code have 416 articles which are contained in more that 100
pages–and this is just an the overview of general principles. In an
effort to improve tax law, a new draft of tax code was presented to the
Russian parliament in February 1996. Apart from laws, the tax regime is
regulated by many other documents. The list of these tax documents
includes 900 items. It is understandable that the taxpayer can be
confused by so many documents. Even a good taxpayer can make mistakes.
The code is not expected to be enacted this year but it is a good step
toward improving the clarity of the tax system. The current system,
plagued by an excessive tax burden and rampant tax evasion, has
seriously impeded tax collection efforts. The proposed draft code seeks
to implement a number of the reforms prevalent in Western economies
during the 1980s, including a broadening of the tax base, lowering of
tax rates, and the reduction of incentives, exemptions, and deductions.
A new mechanism for tax refunds in the case of overpayment is also
provided in the code. If a taxpayer paid too much tax at his own
initiative, the taxpayer may request the overpayment amount be credited
towards his next payment or be refunded within a specified time limit.
If the time limit was exceeded, the amount would be refunded with
interest at a interest rate tied to the prime rate of the Central Bank.
In January 1996, new rules came into effect concerning the refund of VAT
if the taxpayer is involved in exports operations. It was a major
problem since VAT refunds were the responsibility of local budgets. The
1996 budget, which was submitted in mid-August, provided such VAT
refunds from special funds of the federal budget.
Overview of Major Taxes
Income tax
Russia’s individuals income tax has several bands which range from 30 to
60 percent. The 60 percent rate is essentially the only rate in effect
for Westerners. In 1993, the tax law was changed. Earlier, individuals
could only pay taxes in rubles. Now, taxes on income earned in hard
currency may be paid in rubles or in hard currency. Proposals to
increase the Russian personal income tax rates were rejected by Russia’s
upper house, so the 1995 personal income tax rates remain in effect as
of January 1, 1996 (see appendix). Three tax brackets now exist in the
Russian Federation: 12 percent on income up to Rubles. 10 million, 20
percent up to Rubles. 50 million, and 30 percent over Rubles. 50
million. The current exchange rate is one dollar to approximately 4,700
rubles. While many individuals may complain that the higher income tax
rates will cripple them, Russia would still have the lowest personal
income tax rate in Europe at 35 percent.
Excise tax
The excise tax in Russia explicitly covers imported luxury goods,
including tobacco products, beer wine and spirits, cars and light truck,
tires, jewelry, gemstones, rugs, crystal, fur, and leather products. The
rate of excise tax ranges from 10 percent for crystal to 90 percent for
grain alcohol personal. A new principle was applied, in accordance with
a recent decree, to the calculations of excise taxes on alcohol and
tobacco imports. In contrast to the previous practice where excise taxes
were calculated in proportion to the customs value of the imported
goods, under the new procedure, the taxes (on August 1, 1996) will be
imposed in ECU per one unit of commodity item. In some ways, excise
taxes and single-stage retail taxes would seem to be prime candidates
for regional taxation in the Russia just as they are in market
economies, especially if the taxing locality is large enough to avoid
revenue loss from consumers crossing the border to regions with lower
tax rates Such taxes thus seem more suitable for larger intermediate
governments than for small local governments.
Profit tax
The profit tax calls for a 32 percent tax on all profits, with an
exception for profits generated by retailers. Profits by retailers are
taxed at a 45 percent rate. The tax discriminates against Russian
workers because the tax is not applied to the wages of foreign workers.
The profit tax keeps intact the profit reinvestment concept of prior
Soviet tax legislation. Essentially, no tax is imposed on profits
reinvested in the business venture. Also, the government has not changed
the 15 percent withholding rate for interest, dividends, and other
passive income. A 20 percent withholding rate applies to royalties on
copyrights and licenses.
VAT
A VAT of 28 percent passed into a law on December 6, 1991 and became
effective on January 1, 1992. The VAT was not initially imposed on
imports or exports. However, the government changed the policy very soon
afterwards. For instance Russian neighbor, Ukraine will be happy to
realize that Russia imposed a VAT on imported goods originating from
Ukraine (Decree No 1216 of August 18, 1996). The reason for the decree
is to preserve stability of the Russian commodity market. The decree
also takes into account that Ukraine is not a part to an agreement
signed by the member states of the Commonwealth of Independent states on
the coordination of tax policy. The general VAT rate as of January 12,
1996, remains at 20 percent. A rate of 10 percent applies to certain
food items and children’s goods. Payment of the profits tax and VAT of
state owned enterprises is centralized at the level of their ministries
administrative departments (Decision No 629 of May 22, 1996).
Corporate income tax
The corporate income tax has three tax rates and the application is
based on the type of income earned. Manufacturing income is taxed at 18
percent, service income at 25 percent, and income earned by retailers at
45 percent. One of the most interesting things is that the revenue is
not intended to go to the central government. Moreover, the law is
written that regional authorities can tax corporate profits up to 18
percent, 25 percent, and 45 percent.
Sales tax
The sales tax was first introduced on December 29, 1990 by USSR Cabinet
of Ministers. It was decided to approve a list of goods and services
whose sale on USSR territory will not incur the 5 percent sales tax. The
local and regional authorities may make additions to list of goods in
everyday demand and services to the population which are exempt from the
sales tax (see the appendix). population.
Further Drawbacks of the Russian Tax System
Attorneys and tax specialists in Russia say the greatest problem facing
enterprises is the lack of a satisfactory tax code. It is necessary that
tax policy should be circumscribed and that more power should be given
to the legislature. The nature of the tax structure allows some people
to be heroes by breaking the rules. For example, a pharmaceutical
company chief who had his security guard expel tax inspectors from his
head quarters and vowed to shoot them if they returned, was elected to a
seat in Parliament instead of going to jail. The penalties for
non-payment of taxes is a defiency of the tax system that drives people
from the tax system because they are so afraid of making a mistake that
they prefer not to pay. For example, a standard 100 percent fine exists
for understating income. The interest rate on late payments alone
amounts to 0.7 percent a day, or 255 percent per annum, a penalty that
can dwarf the actual liability. The penalty amount is presently reduced
and is tied to the refinancing rate of the Bank of Russia. The penalty
for each day of delinquent payments would equal 1/300 of the prime rate
of the Central Russian Bank.
Russia also does not have a specialized tax court. To seek justice in
tax issues, taxpayers have to find a people’s court which is willing to
accept the case. The courts do not have expertise in the area of tax law
which is why most of the courts are reluctant to accept tax cases. The
lack of legal recourse leads to corruption within the tax collection
system. Russia does not have a law like the Freedom of Information Act
(FOIA) or the Privacy Act which hinders the accountability of the tax
service.
Aside from ample monetary reasons to evade and avoid taxes, taxes (in
the Western sense) did not exist in Russia during the Soviet period and
therefore the idea of a Western style taxation is unpalatable to many
Russians. Taxes began to appear in the USSR only in 1991 which means
that the current population has only had to deal with the issue of
taxation over a short period of time. The result of this historical
experience is that only between 60 and 75 percent of projected tax
revenues have been collected this year.
Recent attempts to Improve Revenue
Decree No 1212 of August 18, 1996 is designed to improve tax collection
by preventing tax evasion and streamlining cash and non cash turnover.
Among other measures, the decree orders enterprises in arrears of
payments to the government to open settlement accounts in banks or
credit institution within the Russian Federation. Those accounts are
referred to as accounts of enterprise in arrears. When requested by the
appropriate tax authorities, banks and other credit organizations are
required to provide data about the transaction of enterprises holding
these accounts. Taxation organ may refuse to register the account of an
enterprise in arrears in case there are no funds available on the
correspondent account of the bank or other credit organizations. An
interesting aspect of this decree is that the government finally began
to crack down on misrepresentation “in case of noncompliance with this
requirement or intentional provision of false information in the notice
submitted to taxation organ enterprise in arrears that had performed the
transactions in question will be fined by the taxation organ in the
amount of the transaction value”. It has proposed to improve the tax
system by scrutinizing financial transactions through banks. If an
enterprise opens a bank account, the bank or other type of credit
institution must immediately inform the tax organs about the accounts
for tax purposes. Such tax policy will let the tax agencies observe tax
payments more efficiently as everything will be recorded.
Presidential Decree No 1212 of August 18, 1996 also introduced policies
concerning cases containing the circumstances stipulated in the Law of
the Russian Federation on Insolvency (Bankruptcy) of Enterprises, the
Federal Department on Insolvency (Bankruptcy) at the State Property
Management Committee of the Russia Federation shall file with
arbitration court request to institute proceedings on insolvency
(bankruptcy) against enterprises that have repeatedly violated this
Decree during one calendar year. As it was with collective farms and
state farms, enterprises can just change their names and continue to
evade taxes. An important issue related to insolvency is loss of massive
amounts of jobs and what will workers and one enterprise” towns do for a
living and revenue.
On the bases of the decree, the government has widened its crackdown on
tax evaders–adding several leading oil companies to a list of tax
delinquents that might be forced into bankruptcy court unless they pay
their arrears. The move was the latest in a series of desperate measures
the government is taking to boost tax collection and mend its thread
bare budget. The government hopes that by threatening major tax evaders
with bankruptcy, they will scare the country’s errant tax payers into
filling empty coffers. Major companies targeted for bankruptcy can avoid
insolvency proceedings, if their accounts showed the government owes
them an amounts equal to their tax debts for fuel supplied to state
organizations.
The most recent step in fighting tax evaders was Russian presidential
decree No 1428, (dated (October 11, 1996, which created a Processional
Emergency Commission (the Commission) on strengthening fiscal
discipline. The major principals and objectives are:
. Control over the timely and full payment of taxes and customs and
other compulsory payments; . The elaboration of measures to secure a
full-scale collection of taxes and other compulsory payments; . Securing
the legality and efficiency of the work of tax and customs, as well as
tax police agencies; . Control over the timely and special-purpose use
of the resources of the federal budget and state extra budgetary funds.
. Take decisions to carry out checks of the financial and economic
activity of legal entities and compliance by individuals and entities
with the tax, customs and banking legislation of the Russian Federation;
. Check the operations of tax and customs bodies;
. Organize check of the timely and special-purpose use of the resources
of the federal budget and state extra budgetary funds.
In addition, the President granted broad powers to the Commission to
meet the objectives of the decree and secure its accountability.
Monetary Policy
Interest rates, much to the chagrin of reformers, in the past barely
reacted to currency stabilization and the ensuing drop in inflation.
Little confidence existed in the sustainability of reforms while
inflation expectations remained high. In 1996, interest rates finally
started to come down–albeit slowly. Real interest rates, however, are
still very high. As recently agreed by the Russian government and the
IMF, the ruble is due to become convertible by 1997. Better access to
the ruble market could thus lead to a rapid increase in international
interest in the currency. Nevertheless, the ruble is trying to join the
club of respectable currencies. Due to the establishment of a crawling
peg, the currency’s downslide is almost under control. A generally more
stable economic environment and high interest rates could make the ruble
more attractive. The ruble’s recent past has been eventful to say the
least. Between January 1992–effectively the start of economic reform
under Yeltsin–and March 1995,the currency depreciated by a massive
2,130 percent. In the second quarter of 1995, an over-restrictive
monetary policy led to a severe shortage of the currency which then duly
appreciated by 15 percent within three months. As concerns rose that too
rapid currency appreciation would further destabilize the economy, the
free-floating ruble program was abandoned and a ‘ruble corridor’, which
envisaged further depreciation but within predetermined limits, was
introduced. The ruble corridor program has proven to be quite
successful. The Central Bank, which has been intervening repeatedly in
the market, has managed to keep its foreign exchange reserves at a
satisfactory level, and the business community has been able to rely on
a more predictable exchange rate trend. In July 1996, the ‘fixed’ ruble
corridor (the upper and lower limits of which only had to be redefined
every few months) was transformed into a ‘variable’ ruble corridor, with
the band shifting on a daily basis. Under this program, monthly
depreciation now stands at around 1.5 percent. By the end of December
1996, the exchange rate against the dollar should have reached Rb
5,700/US $.
Russia’s monetary environment started showing promising signs of
stabilizing in 1996. During 1995, inflation reached 200 percent by
December. 1996 is drawing to a close and the inflation rate seems set to
fall to 19 percent. The central bank has been pursuing a very consistent
policy lately, so its goal of maintaining monetary stability looks
credible. Moreover, low inflation is one of the conditions imposed by
the IMF in return for its monthly credit and it is therefore hardly in
the government’s interest to start emission based means of financing the
budget deficit. The main risk for inflation could come from a high
budget deficit due to low tax revenues. Financing the deficit has become
easier than in the past due to good international credit ratings–for
example, IBCA: BB+, Moody’s: Ba2.–are making it cheaper for Russia to
borrow on the foreign capital markets.
A key element of Russia’s macroeconomic stabilization program has been a
tight monetary policy to soak up excess rubles floating around the
Russian economy and fueling inflation. That policy’s success is among
the factors that drove T-bill yields up by 26.6 percent Monday to an
annualized 121.4 percent on the secondary market. Just a month ago,
yields stood at 53.33 percent, according to Skate-to Press Consulting
Agency.
The reason for the jump, analysts say, is simple supply and demand –
little ruble supply in the market at a time when government spending
demands revenue. The banks do not have the money to invest in GKO
(treasury bills) at 3 percent per month–but they will find the money to
invest for 10 percent per month. Russia’s monetary expansion under the
IMF agreement is not to exceed 3 percent, compared with 9 percent in
December. Combined with promises by Yeltsin to repay wage arrears and
ease the impact of reforms on the social sphere, that tight policy has
forced the government to raise yields as a lure to banks to loan the
government money.
Intergovernmental Finance
The decentralization of the Russian Federation’s intergovernmental
financial relationships began with a series of successive tax sharing
arrangements along with the regions expenditure responsibilities
increasing. This sharing and reassignment strategy continued up to and
on through the adoption of a new constitution in December 1993. In
Russia, the tax formula sharing rates vary by region and are often
negotiated by each locality with the center. This makes any assessment
about the equity impact of transfers or their effects on local revenue
effort difficult. A general disadvantage of tax sharing is that it does
little to enhance local accountability or efficiency. Localities receive
revenue regardless of their tax effort and have no discretion to set the
tax rate or base. If they view these revenues as costless, their
incentive to spend efficiently is lessened. The result may be undue
expansion of subnational spending. In Russia shared taxes are retained
by (or accrue to) the jurisdiction in which they are collected. This
differs from most market industrial and developing economies where
shared taxes (like the VAT in Germany) may be shared through a formula
based on factors such as population, per capita income, urbanization or
other factors. Derivation-based sharing as a rule channels resources to
high income areas where the tax base and, therefore, revenue collections
are largest. It is thus inherently counter-equalizing. This may be a
problem in countries where regional inequities are serious and where the
intergovernmental system lacks other instruments (such as transfers) to
address such imbalances.
The intergovernmental fiscal relations of the Russian Federation
continues to be highly opaque due to the bargain-based system which
presently is being utilized. The bargain-based system is making
accountability in fiscal policy even worse than is necessary–therefore
further reducing the transparency. The size and structure of the Russian
Federation contributes to the problems occurring in its fiscal
relationships. It is made up of 89 regions consisting of 29 republics,
50 oblasts, 6 krais, and 10 autonomous okrugs, plus 2 metropolitan
cities (Moscow and St. Petersburg) which are referred to as the 89
“subjects of the federation” in the constitution. The regions are even
further subdivided into more than 2000 districts, where all the local
governments within a region report to the regional governments and are
subject to regional regulations, although each local government has
independent” (emphasis added) budgetary and administrative status.
Effects of Decentralization
Economic decentralization has led to the transfer of a number of
services with major benefit spillovers (education, health, and social
welfare) to the regional and local levels. While the administration of
these programs by local governments may be appropriate because they are
closer to the people, the many small local governments that have been
created as a result of the strong political push for decentralization
cannot likely provide these services at an adequate level from their own
resources. In some regions, enterprises’ “public” spending exceeds
budgetary social spending and, in a few “one-company towns” there is no
public spending by the budget at all on non-administrative functions.
Enterprises did not provide these services once privatized, and
responsibility fell onto regional and local governments to finance them.
But local governments will need revenue sources to finance the
additional burden.
Decentralization, which led to ownership assignment and financial
responsibility, has caused the regions to become more involved in the
commercial sector through producer subsidies, capital transfers, and
privatization. It has also led to the budgetary expenditures by the
regional governments to increase from 13 percent of the GDP in 1992 to
around 18 percent in 1994. Recent policy changes have suggested that
this trend of more subnational spending is likely to continue.
The Federal government has approved legislation which led to the
previously discussed changes in expenditure assignment and also gave
local governments the power to formulate budgets and raise revenues
without worrying that their surpluses were going to be extracted by the
central government. These new assignments of expenditures are not
efficient, in part because the federal government has passed down” many
of the expenditure assignments which were formerly the responsibility of
the Soviet state. Revenue autonomy has not been reached partially due to
the yearly changes in tax sharing rates. Disparities between the rich
and poor regions has also contributed to a problem budgetary concern.
Along with these disparities, the high rate of inflation has
significantly contributed to revenue unpredictability of the rayons and
oblasts. Revenue predictability and the subnational area’s economic
state due is of the utmost importance when one is considering
expenditure assignment of the federation.
Social Welfare and Russia
The significance and necessity of an efficient social safety net in the
Russian Federation can only be understood within the context of the
Soviet experience of social security and how today the ideological
inclination toward a welfare state is affecting Russian society. The
state’s pervasive role in Soviet society affected both economic and
social conditions. Economically, a state-caused inverse relationship
existed between GDP and the state’s commitment to social safety during
the Brezhnev regime. Economic and political stagnation characterized the
latter years of the Brezhnev era. Economically, GNP growth declined
precipitously between 1961 and 1985 (see A1 and A2). Prior to 1960, the
USSR utilized extensive rather than intensive factors of
production–specifically labor, capital (stock), and natural resources.
In essence, Soviet authorities were able to take advantage of Imperial
Russia’s lack of a strong industrial base by transferring much of the
population from agriculture to industrial production during Stalin rapid
industrialization drive of the 1930s and 1940s. The emphasis placed on
heavy industry produced a correspondingly high rate of consumer saving
which allowed for increased capital growth, that when combined with the
natural resource abundance and intensive use of existing capital helped
sustain economic growth The USSR’s ability to sustain economic growth in
the 1970s was fostered by its large reserve of oil that helped finance
imports of western technology.
The exhaustion of labor surplus, declining birth rates, inefficient use
of natural resources and other factors of production, the growing
expenditures needed to maintain military parity with the United States,
and the sudden drop in oil prices, and the mis-development of the
economy all were factors that contributed to the USSR’s economic
stagnation in the late 1970s and early 1980s. While economic efficiency
decreased during the Brezhnev period, the USSR’s leadership demonstrated
increased commitment to the Soviet version of the social safety net. The
party-state’s pervasive role in society had the effect of slowing
economic growth through poor re-allocation of resources and the social
effect of retarding the development of a civic society. As a result,
Soviet society developed an enduring attachment to the idea of an
omnipotent state which provided for their basic needs regardless of the
economic costs.
From a Western perspective, the Soviet Union was ideologically a hyper”
welfare state in the sense that prior to the Gorbachev era, the state
attempted to provide a high level of social security for every citizen,
often to the point of harming economic efficiency. Additionally, it
heavily restricted the development of private sector in order to prevent
wide wage disparity. As mentioned above, the CPSU’s monopoly on power
extended to every aspect of society and in exchange for party dominance
the working population received implicit social guarantees in the form
of a social contract.” Linda J. Cook succinctly identifies each sides’
basic commitments and responsibilities:
Basically, the regime provided broad guarantees of full and secure
employment, state controlled and heavily subsidized prices for essential
goods, fully socialized human services, and egalitarian wage policies.
In exchange for such comprehensive state provision of economic and
social security, Soviet workers consented to the party’s extensive and
monopolistic power, accepted state domination of the economy, and
compiled with authoritarian political norms. Maintenance of labor peace
in this political system thus required relatively little use of overt
coercion.
The weakening of the party and other unintended consequences of glasnost
and perestroika such as the emergence of the Russian Republic, the
decision to release Eastern Europe from Soviet domination, and the
attempt to make state owned enterprises more efficient all had a direct
impact on lowering the standard living for the USSR’s population.
Gorbachev tried and failed to cut the guarantees of the social contract.
In contrast to earlier in the Soviet period, the perestroika reforms had
the effect of giving significance to money” in the sense that inputs had
developed value through the economic decisions which constituted
perestroika. From the center’s perspective, the problems caused by the
inability to cut expenditures through revision of the social guarantees
were compounded by revenue loss in three key areas: vodka sales,
turnover tax, and republic contribution to the center–especially from
the Russian Republic.
Gorbachev began perestroika with an attack on worker efficiency. One
measure adopted to combat this perceived evil was restriction on the
sale of alcohol. The consequence was a loss in revenue which was further
compounded by expenditures related to the Chernoybl disaster and the
massive Armernian earthquake in 1987. In 1990, the center granted state
owned enterprise (SOEs) greater leeway in the setting of prices–between
50 percent and 100 percent of state mandated prices. Since retail prices
were unaltered, the state lost a huge amount of revenue from the
turnover tax. In addition, Russia offered to lower the profit tax for
those enterprises willing to pledge” allegiance to the Russian Republic.
Finally, the dissolution of the Soviet Union was hastened by the rise of
Russian nationalism and populism both of which had economic
implications. The Russian Republic provided 80 percent of the revenue to
the USSR’s budget. Yeltsin, using his powerful position within the
Russian parliament, declared in October of 1989 that the Republic would
halt all payment to Union institutions. He followed this devastating
maneuver by nationalizing” the USSR Ministry of Finance and seizing its
mints. In October of that year, Russia seized her share of the USSR’S
precious metals. Faced with such tremendous loss of revenue which
created a budget deficit that equaled 10 percent of GNP, the Soviet
government elected to increase the amount of money in circulation
without a corresponding increase in the production of consumer goods and
services. The decision to increase money circulation, through wage
increases, had a jarring effect on Soviet society. The first impact,
characterized by the indelible image of long bread lines and the
stereotype that a large profit could be made on a pair of Levis familiar
to many Westerner was the result of the disruption of goods and services
to the general population.
Price stability began to go by the wayside in the fall of 1988 with an
estimated inflation rate of 7 percent which mushroomed to 10 percent in
1990. As Table A3 and A4 indicate, the state increased both the level of
wages and subsidies in the other which constituted the component parts
of the Soviet safety net. Real wages, however did not compensate for
inflation. The decline in social welfare from a monetary angle was
compounded by quality decline in social consumption areas. Although the
state increase subsides to social consumption areas, the collapse of the
Council on Mutual Economic Assistance (CMEA) which provided much of the
USSR’s medicine and medical supplies and a growing environmental
movement which forced the closure of many chemical plant that supplied
the limited domestic market. Gorbachev’s attempts at reforms destroyed
not only the social contract which existed between the state and its
citizens but the USSR as well. The late Soviet period thus provides the
starting point for examining poverty and the Russian Federations
response to it in the form of the social safety net.
The Soviet social welfare system was effective in that absolute poverty,
i. e. wide spread hunger or inadequate diet, was avoided in the latter
years of the Soviet period since the state could supply the basic needs
of the population through its control of USSR’s resources and society as
a whole. Research into question of poverty and therefore poverty
alleviation policy (specifically the question of income inequality and
distribution) was hindered by the imposition of political rather than
economic explanations. In 1965, the Soviet Labor Research Institute
adopted a social minimum income norm which was derived from the
estimated costs of human consumption. Goskomstat revised the income
level based on the prices reported by state-owned stores. The price
consumers were faced with, however, due to their shopping habits, the
existence of a black market,” and inflationary pressures dramatically
reduced their purchasing power. The Russian Federation revised the
poverty line in 1992 to encompass the age and gender of individual
households. The six categories are: children under six years of age
children between the ages of 6 and 17, men between the ages of 18 and
59, women between the ages of 18 and 54, men age 60 and above, and women
age 55 and older
Closer to the U.S poverty line definition, the Russian poverty level is
established by first collecting low-cost cost food baskets for each
demographic group… [and] after pricing each market food basket at
national prices, age, and gender-specific multipliers yield individual
poverty line for each demographic group. The definition of poverty is
critically important to social welfare of Russia because, in theory, it
sets pension, minimum wage level, and welfare payments. The USSR’s
dissolution has altered the scope, source and method of financing of
social welfare programs. The Soviet state provided a broad range of
social services, through state owned enterprise. From a public finance
perspective, the transition to a more market oriented system has meant
the diversification of social spending responsibility through the
creation of off-budgetary funds (OBF) and passing down the bulk of
public social spending mandates to sub-national governments. The
following are the major OBFs: Pension Fund, Social Insurance Fund,
Employment Fund, and the Fund for Social Support.
Created in 1991, the Pension Fund was designed to take pressure of
federal budget and is authorized to collect a mandatory payment from
employers in the form of a mandatory 28 percent contribution while from
agricultural enterprises the mandatory contribution is 20. 6 percent and
5 percent of the total income of self-employed individuals. Employees
make a 1 percent contribution to the Fund. Labor pensions, financed from
these contribution, and social pension which are financed from the
federal budget are administered by an independent government agency. The
former constitute the majority (80 percent) of Russian pensioners and
thus the level of labor pensions affect the lives 19. 5 percent of the
Russian population. To be eligible for labor pensions, men must have
made 25 years worth of contributions while women must have made 20 years
of contribution. Eligibility for labor pensions can be lower depending
on occupation–hazardous occupations such as coal mining and military
service are two examples. Social pensions are for individual with less
than 5 years of work experience and is equal two-thirds of the minimum
old-age pension or in the case of disability the amount varies but does
not exceed the minimum labor pension.
Payroll contributions are the also the main source of funding for the
Social Insurance Fund (SIF) and the Employment Fund. Created in August
1992, the SIF is funded by a 5.4 percent payroll deduction from every
worker. The SIF is intended to fund child care, maternal care benefits,
and sick care. Generally, 74 percent of revenue collected from the SIF
contributions remains with the enterprise while the remainder is sent to
the center to finance federal responsibilities. Workers who have accrued
eight or more years of experience receive their entire salary as do
Chernobyl victims, parents with three or more children, and war victims.
Workers with less that five years experience receive 60 percent of their
salaries while those with between five and eight years experience
receive 80 percent of their salaries. It is accepted practice that
benefits are paid until the worker recovers or is granted a disability
pension.
Mothers receive support through a maternity grant which equals five
times the amount of the present minimum wage. Additionally, working
mothers receive a maternity allowance, over the span of 126 days, which
is equivalent to her entire salary. When this time has elapsed, the
mother can receive a payments that equals the minimum wage for up to a
year and half.
The expenditure responsibility for family benefits, which generally are
divided into the following broad categories: payment made to all
families with children without regard to income or prerequisites, cash
transfers to disadvantaged families, and payments made to working
mothers, is unequally shared among all three levels of government.
Although the national level contributes, it mandates the levels of
benefits while often leaving it to the sub-national governments to
finance the increase.
Unemployment in the region in a relatively new phenomena due to the
general nature of the Soviet system. The Employment Fund was created in
1992 to pay unemployment benefits to those affected by the transition to
a market economy. Contribution to the fund comes from a mandatory two
percent payroll deduction and budget transfers. Revenue collected from
the payroll tax is shared between the raion and oblast governments on a
45 percent to 55 percent ratio. The former then remits 10 percent to the
center for federal responsibilities. Benefits, from Western perspective,
are considered generous. Individuals just entering the work force
receive the minimum wage. Workers who have been laid of receive in the
first three months receive a cash benefit equal to 75 percent of their
previous salary. The benefits level drops to 60 percent for the
following six months and 45 percent for the remainder of the year.
The Fund for Social Support ( FFS) is a limited national source for
sub-national funding of social programs. In 1992, the FFS accounted for
only .01 percent of GDP. The stated purpose of this fund is to aid
rayons that have been particularly hard hit in the transition from a
command economy. The FFS began operations in 1992 with revenue from
seized Party assets and tax from re-appraised inventories. It is also
supposed to receive revenue form the privatization process (although it
did not receive the ten percent assigned in 1992) and “receipts from the
revaluation of commodities in state stores and ruble receipts from sale
of food aid.”
Although inflation increases revenue to the Russian government, it
naturally impoverishes the population when adjustments are not made (or
insufficient to deal adequately with inflation) to monetary benefits
such as the minimum wage and pensions which provides the basis for the
social safety net. Inflation was one of the primary causes of poverty in
Russia. As chart A5 shows, social subsidies and transfers have also been
ineffective because they do not reach the truly needy. The primary
reason for this economic waste is the lack of means based testing.
The problem of hyper-inflation which had plagued Russia earlier in the
transition period has been replaced” by the dramatic reduction in real
wages and severe dilemma of arrears. By December 1995, real wages
declined by 13 percent and real consumption declined by 5.3 percent.
Real wage decline, and unexpectedly low levels of unemployment, can be
attributed to evasion of excess wage tax and inside the gate employment”
by which enterprise managers hoard labor by paying minimum wage and
compensation workers in non-taxable manners such as payment in kind, low
interest long-term loans that have questionable repayment terms. It
should be noted that the Pension Fund is becoming more experienced in
detecting methods of tax avoidance and recent action has been taken to
close loopholes
Reduced inflation has given way to arrears as one of the primary causes
of poverty in the Russian Federation and has primarily been the result
of international pressure to reduce the budget deficit by ending
emission based methods of covering the deficit” and tax avoidance and
evasion. According to ITAR-TASS, pensioner were owed nearly 3 billion
dollars in October 1996. Revealing the revenue gap, 22 regions were able
to make pension payments while the remaining 69 needed transfers from
the federal fund. Wage arrears for both private and public sector were
estimated at 43 trillion rubles–9 billion of which was the state’s
responsibility.
An area of concern which was not addressed in 1992 and continues to be a
problem today is a rapidly deteriorating income distribution between the
regions of the Russian Federation. The disparities between the rich and
poor regions could possibly be the worst amongst all the federations.
CONCLUSION AND SUGGESTION
One of the greatest obstacles to successful Russian market economic
development is the absence of a modern and effective tax system and lack
of reliable data. Foreign capital always seeks predictability,
especially in terms of projecting tax liabilities. Lack of a stable tax
regime is the number one reason why Russia’s direct foreign investment
dollar level is so low compared with other emerging markets. A frequent
and common concern expressed by foreign companies is the fear (whether
real or perceived) of an unstable, inequitable, unreliable, and
unpredictable tax system in Russia. As a result, capital that could
potentially be invested in Russia is instead invested in other countries
that are perceived as enjoying more stable tax systems. For Russia, it
is time to introduce tax breaks or other incentives by the end of the
year for companies using international accounting methods as part of a
new business reform plan. For example, companies which would follow
these (international accounting) standards will have their profit tax
lowered by, say, five percent… or maybe they will receive other
privileges. Most Russian companies use domestic accounting practices
developed to calculate tax levels. Western accountants say Russian
accounting has limited use for business planning and investment. Below,
we have stated some suggestion and concerns regarding public finance in
transitional economies:
Before making any changes in the tax system the officials have to think
very carefully to avoid unplanned changes. For instance, the law on the
VAT has been changed 13 times since it was enacted. Proper tax reform
would also solve another of Russia’s problems–its chronic budget
deficit. The country’s inadequate system of tax revenue collection has
been unable to keep pace with the rise in government expenditure,
leading to a budget deficit of 6.3 per cent of GDP in the first half of
this year. According to Mr. Stuart Brown, eastern Europe economist at
Paribas Capital Markets, while fiscal policy has been lax in Russia,
monetary policy has had to bear the burden of reducing inflation. The
result has been high real interest rates. No wonder then that several
leading companies are looking abroad for capital. Reducing the budget
deficit, to reduce “crowding out” at home and allow fiscal policy to
take some of the burden in controlling inflation, must therefore be a
priority for the Russian government. The problem is that tax evasion and
a culture of non-payment in Russian industry, will hamper efforts to
improve revenue collection.
Regulate the movement of budget money by reorganize the Russian treasury
and concentrate all budgetary financial flows within it.
A good approach to battling non-compliance would be the implementation
of a unified computer information system to control revenues and
expenditures of the federal budget and state extra-budgetary funds,
which should contain taxpayers registration system and bring together
information on tax and customs duties payments, banking transactions and
cash disbursements, as well as data on tracing and utilization of the
federal budget resources. But it is still difficult to implement. First,
Russia does not have high qualified specialists in database and
management information systems (MIS). Second, it will require buying
expensive mainframe computers what is critical under collected (60
percent – percent) revenue. It is also important to decide what kind of
tax information is going to be the first to be put in the database. The
State Tax Service of the Russian Federation recently began this process
by requiring all taxpayers to indicate a personal taxpayer
identification number (PTIN) on payments and settlement documents for
taxes and other levies beginning on August 1, 1995. The rule as of
January 1, 1996, states that a PTIN should be included on all payment
and settlement documents. Also Russia’s State Taxation Service is
redoubling its efforts to stop commercial banks from hiding income from
tax authorities. The taxation service recently found that credit
institutions failed to transfer 3 trillion rubles to the state on time,
and that they have used legal means to hide their income. With the
centralized computer tax information system, it would be easier to
observe taxpayers and prevent tax evasion.
Reduce the cost of servicing the state debt.
Stop the emission of money.
Improve control over monopolies.
Reorganize the banking system. Set up a federal deposit of insurance
bond.
Reform ministry of finance and economy.
Diversification of the tax base.
Some services should be financed by taxes levied on local beneficiaries.
“Local taxes” are those over which local authorities have some control.
Which taxes to assign? The question is not easy for Russia. In many
market economies, the central government controls those taxes considered
to be most redistributive, such as personal income taxes, and the
cyclical corporate income tax, leaving more stable revenue sources
levied on a consumption base or property to the local level. For
example, some federal systems (the U.S., Switzerland, Canada) allow
subnational corporate taxes, it would be better for the federal
government to set the corporate income tax. For the transition
economies, considerations of both administrative complexity and
allocative efficiency suggest that subnationally levied corporate taxes
should be avoided at the present time. Permitting the many small
subnational governments in the transition economies to set corporate tax
rates (or adjust the tax base) will allow substantial tax competition
and differentiation in enterprise taxation, influencing enterprise
location decisions in perhaps undesirable directions.
.The development of a more efficient and effective social safety net in
perhaps the most immediate and difficult task to accomplish in the
Russian Federation. Aside from cultural reasons outlined earlier,
economic growth cannot occur without social stability which will not
happen until Russia can design an effective system of coverage. Some
possible ways to improve this critical area are: diversify the tax base
for social programs, redesign the system of federal-sub-national
relation which has made the latter bear an unjust amount of the
burden–unfair because of regional differences and compounded by Soviet
planning–, and make stronger attempts to reduce arrears which is a
difficult task due to the temptation to return to emission-based methods
of covering expenditure requirements.
APPENDIX
PRIVATE
Table A1 Selected Economic Indicators, Average Annual Rate of Growth
1961-70 1971-75 1976-80 1981-85 1986-90
1. Net material product (NMP), Soviet official* 6.4 5.1 3.9 3.1 4.1
2. Gross national product (GNP), CIA estimates* 5.1 3.7 2.1 1.9 C
3. Gross fixed capital investment, Soviet official* 6.9 6.8 3.5 3.5 4.9
4. Industrial output, Soviet official 8.5 7.4 4.4 3.7 4.6
5. Industrial output, CIA estimates b. 6.6 5.9 2.4 2.0 C
6. Agricultural output, Soviet official c. C 2.5 1.8 1.0 2.7
7. Agricultural output, CIA estimates b.,c. C 1.4 0.4 (-)0.6 C
8. Real income per capita, Soviet official 6.5 4.3 3.4 2.1 2.7
9. Consumption per capita, CIA estimates b. 3.8 2.9 2.0 1.9 C
SOURCES: Soviet official data and plan goals, TSSU (1986) and earlier
volumes in the same series; Pravda, March 9, 1986; June 19, 1986; June
20, 1986; John Pitzer (1982), CIA (1985, pp. 64ff; 1989, pp. 45, 59ff);
Gertrude E. Schroeder and M. Elizabeth Denton (1982). For consumption,
1981-1985, and agricultural output, 1976-85, unclassified CIA data
supplied to author. Authors’ Source: Abrham Bergson Soviet Economic
Reform Under Gorbachev” in From Socialism to Market Economy .ed William
Kern 1992 p. 37
a. Utilized for consumption and accumulation.
b. Output valued in 1970 prices for growth rates for 1961-75 and in 1982
prices for growth rates for 1976-85.
c. Not available.
d. CIA estimates essentially accord with Soviet official data.
e. Yearly growth rate of average for five-year period over average for
previous five-year period.
PRIVATE
Table A2 Comparison of GNP Growth in USSR and Western Countries 1961-85
(Average Annual Growth in Per Cent)
USSR US FRG France Italy UK
1961-65 4.8 4.6 4.8 5.8 5.2 3.2
1966-70 5.1 3.2 4.2 5.4 6.2 2.5
1971-75 3 2.2 2.1 4 2.4 2.2
1976-80 2.3 3.4 3.3 3.3 3.8 1.6
1981-85 1.9 2.4 1.3 1.1 0.9 1.9
Note: US GNP calculated in 1982 prices. GNP growths of FRG, France,
Italy and UK are calculated from GDP in 1980 prices.
Source: Cohn (1987, p. 12) Authors’ Source: Elliot and Dowla in
International Journal of Social Economics” v. 21 p. 78
PRIVATE
Table A3 Soviet state budget expenditures for consumer and food
subsidies, social insurance, and health care, 1985-1990
Type of expenditure 1985 1986 1987 1988 1989 1990
In billions of rubles (nominal)
Total state expenditures 386.5 417.1 430.9 459.5 482.6 488.2
Consumer subsidies 58.0 65.6 69.8 89.8 100.7 110.5
Food subsidies 56.0 58.0 64.9 66.0 87.7 95.7
Social insurance and health care 83.6 89.3 94.5 102.5 105.5 117.2
As percent of GNPConsumer subsidies 7.5 8.2 8.5 10.3 10.9 11.6
Social insurance and health care 10.7 11.2 11.5 11.7 11.4 12.3
Source: Anders Aslund, “Gorbachev, Perestroyka, and Economic Crisis,”
Problems of Communism, vol. 40, nos. 1-2, Jan.-Apr. 1991, p. 25
a. Estimated figures.
Authors’ Source: Linda J. Cook. 1995 The Soviet Social Contract and Why
It Failed p. 148
PRIVATE
Table A5 Significance of Public Transfer in Household Income for
households Receiving the Benefit
Very Poor Poor
Not Poor
Transfer % Receiving the benefit Avg % of Recipient Household Income %
Receiving the benefit Avg. % of Recipient Household Income % Receiving
the benefit Avg. % of Recipient Household Income
Family Allowances 288.8 23.6 32.4 14.5 25.7 5.9
Pensions 0.3 75 41 66.9 48.7 58.4
Unemployment Benefit 0.8 21.7 0.4 17.8 0.3 9.8
Subsidies from Local Authorities 100.4 9.6 10.4 9.6 14.5 8.1
Subsidies from Enterprises 55 9.4 8.7 10.8 17.7 11.7
Scholarships 50.2 17.8 6.2 18.2 6.7 8.7
All Transfers* 666.8 58.5 70.9 48.4 74.4 42.6
*All transfers includes those listed (except subsidies from enterprises,
which are included with subsidies from local authorities) plus welfare.
Note that the overall average percent of the household income can be
calculated form the two values reported for each poverty status.
Source: RLMS. Round 4. October 1993- February 1994.
A6 List of Goods in Everyday Demand and Services to the Population which
are Exempt from the Sales Tax
Children’s food, meat, meat products (except delicatessen products),
milk and milk products, margarine, fats, bakery products, flour, pasta
products, eggs, tea, sugar, salt, vegetables (cabbage, carrots, beet,
onions, potatoes),fish and fish products, vegetable oil, mineral water,
children’s items, textbooks for general education schools, specialist
educational and medical equipment and medical supplies;
Children’s items, including clothing, footwear, furniture, bed-linen,
school uniform, toys and sports items; Consumer goods on lists approved
by the councils of ministers of the republics within the USSR, kray
soviet executive committees, oblast soviet executive committees, Moscow
and Leningrad city soviet executive committees and executive committees
of autonomous oblast and autonomous okrug soviets of people’s deputies;
A7 USSR: SALES TAX DECREE Full text of instruction issued by USSR
Ministry of Finance and dated February 11, 1991 ). The provisions
include some of the following:
Liability extends to joint ventures and Soviet organizations engaged in
importing;
Joint ventures will pay tax on hard currency sales in rubles, converted
at the prevailing commercial rate of exchange fixed by USSR Gosbank;
Liability extends over a wide range of supply, including professional,
informational, communication, etc. services;
The tax rate is 5%;
Tax exemption applies to sales of precious metals, coal shale, export
services, trade between parts of a constituted enterprise.
SOURCE: EKONOMIKA I ZHIZN February 23, 199. P19
A8 Taxable income received in calendar year. Source: Tax 96 TNI 4-1
(Foreign Taxation) (Doc 96-947)
less than 12 million Rubles 12 % from 12 million Rubles 1, 44 million
Rubles +to 24 million Rubles 20 % of the sum exceeding 12 million Rubles
from 24 million Rubles 3.84 million Rubles to 36 million Rbls, 25
percent of the sum exceeding 24 million Rubles above 48 million Rubles
10.44 million Rubles + 35 percent of the sum exceeding 48 million Rubles
Isaak I. Dore , 1995 Distribution of Governmental Power Under the
Constitution of Russia” in Parker School Journal of Eastern European
Law” v. 2 p. 675
ibid p. 681
ibid p. 865
ibid p. 691
ibid p. 678
ibid p. 688
With the current political situation we can say that the budget as a
whole, without doubt, will not pass the Duma by the end of the year.
The Moscow Times May 21, 1996. p. 54.
World Paper. September, 1996 p. 33
TNI 73-22, 1996
TNI 22/16, 1992, John Turro
Joint Letter No VG-4-12/25N of June 16, 1995
Doc 96-947
Much of the literature on tax assignment argues that the personal income
tax(PIT), generally one of the more important taxes in revenue terms,
should be retained by the central government, largely for
redistributional and stabilization reasons. Nevertheless, the central
government may give local governments a share in the PIT.
Tax Analysts, Tax Notes International. January 25, 1993
NOVECONCOMMERSANT. July 28, 1994. p. 2
In Russia, this tax is mostly levied at a national level because of the
administrative convenience, these taxes have been levied at the producer
level, not the retail level; and in the transition economy context this
often translates into a tax on a few manufacturers as in Russia, for
example, there are cigarette factories in only 21 of its 2000 “raions”
(Comparative Economic Studies Winter 1994, Vol. 36, No. 4), or sometimes
on the single monopoly producer. Thus, only a few producing districts
would benefit from levying these taxes and revenues from them would
accrue to only a few localities
Tax Analysts, Tax Notes International. January 25, 1993
Tax Analysts, Tax Notes International. January 25, 1993
Tax Analysts, Tax Notes International.January 25, 1993
The British Broadcasting Corporation March 15, 1991
Scot Antel. The Moscow Times. May 21, 1996
Though temporary steps were made like creating special colleges that are
attached to courts of arbitration, we suppose that creating a special
tax courts is essential here
Of course, taxes existed but people could not evade them as they were
centralized and in theory all means of production were owned by the
state.
Washington Post. October 12, 1996. p. A25
But we are afraid that this provision will not benefit the economy
Betsy McKay. The Wall Street Journal.October 29, 1996. p. A12
Comment & Analysis; Statistics; Forecast; November 1996 p. 2
Information Services Quest Economics Database Credit Suisse Financial
Forecast, 1996
Reuter Textline Reinsurance, October 31, 1996
In our opinion, inflation will come down further in 1997, to
approximately 15 percent. Also, Russia continues to fail in its economic
performance of it fiscal and monetary policy within the framework
established by the International Monetary Fund.
The Moscow Times. March 27, 1996
Dmitry Falcovich, head of the macroeconomic department with
Alliance-Menatep
Russian Federation: Toward Medium-Term Viability. 1996. IBRD/World Bank
p.39
Fiscal Management in Russia. 1996. IBRD p. 39
Fiscal Management in Russia. p. 22
John E. Elliot and A.F. Dowla. Gorbachev, Perestroika and Democratizing
Socialism” in International Journal of Social Economics” v. 21 p. 78
Linda J. Cook. 1995 The Soviet Social Contract and Why It Failed.”
Harvard University Press: Cambridge p.2 Cook suggests the following as
empirical evidence: 1. That the Soviet regime consistently deliver to
workers economic security and social welfare; 2. That the regime deliver
these policy goods because it is constrained by it perception of
workers’ expectations or its fear of labor discontent if it fails to
deliver them; [and] 3. that workers give in exchange political
compliance and quiescence. p. 5
Vladmir Mau. 1996 The Political History of Economic Reform in Russia,
1985-1994. Center for Research into Communist Economies p. 59
John Dunlop. 1993. The Rise of Russia and the Collapse of the Soviet
Empire. Princeton University Press: Princeton. p. 267
Cook p.141
ibid p.187
Thomas A. Mroz and Barry M. Popkin. 1995. Poverty and Economic
Transition in the Russian Federation” in Economic Development and
Cultural Change . V 44 p.3
ibid p.4
ibid p. 4
Russia: Social Protection During Transition and Beyond International
Bank For Reconstruction and Development Report No. 11748-RU. p. 23
Vladimir Mikhalev Social Security in Russia under Economic
Transformation” in Europe-Asia Studies v. 48 n.1 (note: As this source
came from an electronic medium, I have omitted page numbers–DL)
ibid
IBRD Report No. 11748-Ru. p. 35
ibid p. 11
EBRD p. 40
ibid
BISNIS Country Report
OMRI November 31, 1996
OMRI October 4, 1996
Financial Times. September 23, 1996
Of course, it is possible to lower administrative costs and improve
overall effiency in the tax system by going to a more computerized
system but resistance to change due to unquestionable job loss is quite
evident in the Russian government.
Komsomol’skaya Pravda. Sept. 24, 1996
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