Putin Calls Time On The Tax Police

by Tatiana Smolenskaya, Tax-News.com, Moscow

14 March 2003

Russian businesses breathed a collective sigh of relief this week after President Putin's decision to disband the notorious tax police. Few, it seems, will be sorry to see the back of this 40,000 strong organisation whose methods have been criticised for becoming excessively heavy handed and counter-productive to the development of the economy as a whole.

Most of the staff from the tax department will now be transferred to the anti-narcotic division of the Interior Ministry, along with much of their equipment and buildings which range from the ominous, including high powered sniper rifles, to the downright macabre, such as sanatoriums. A new streamlined section of the Interior Ministry has been created which will get access to the Tax Police's database as well as having authority to investigate and enforce transgressions.

The Tax Police was born in 1993 out of the Chief Department of Tax Investigation, itself created a year earlier. It was charged with cracking down on the more serious corporate and high level tax crimes, though quickly began to gain a reputation for targeting smaller businesses with increasingly 'paramilitary' style methods. According to the Moscow Times, the department was charged with upholding just two key tenets of tax legislation - tax evasion by companies and individuals. It also had authority to uphold another 26 articles of the tax code, though these were shared with the interior ministry.

Ultimately, it seems this rather Orwellian organisation was seen to be increasingly unnecessary in the light of the amount of resources that it used and the jurisdictional overlap with the Interior Ministry. "Eventually, you had a huge body that was fighting a comparatively small problem. ... They had 40,000 employees, which for Russia is a lot," said Maxim Maximovsky, a senior tax lawyer with law firm Pepelyaev and Goltsblat. The Ministry of Interior confirmed in a statement: "The problem of overlapping duties between the Interior Ministry and the Tax Police arose some time ago," making the tax Police's position increasingly untenable.

One factor which probably hastened the demise of the Tax Police was the accusation by many that it was riddled with corruption, and effectively promoted unfair business practices by receiving pay-offs from many businessmen. Therefore, on balance, the Tax Police was seen to be somewhat counter-productive in Russia's fledgling business culture. "They were used as a mechanism for unfair competition and for extortion by blocking economic activities," said Andrei Nasonov of the Association of Entrepreneurial Organizations of Russia. He added: "This decision is certainly not a coincidence, and it was adopted because there have been too many signals from the business community that the Tax Police were slowing down economic growth."

Reaction to Putin's decision was positive, especially amongst the business community. "It's a sensible step. No one really understood exactly what the Tax Police did," a major metals company source told the Moscow Times. Confirming the move will be good for big business in Russia, Alexander Pikayev of the Moscow Carnegie Centre said "I think oligarchs can rejoice."

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