Putin's Tax Reforms Paying Off In More Ways Than One

by Tatiana Smolensky, Tax-News.com, Moscow

12 September 2001

According to a recent Wall Street Journal report, the tax and legal reforms put in place over the last year by Russian President Vladimir Putin are literally paying dividends.

First, the Financial Action Task Force recently announced that as a result of new anti-money laundering legislation enacted, Russia would not face the imposition of sanctions later this year, which was a relief for politicians and businessmen alike.

Now, however, it is the turn of shareholders and stock market investors to be relieved, as the imposition of a simplified and more transparent tax code has meant that for the first time since the collapse of the Soviet Union, Russian companies are beginning to show reasonable paper profits.

Previously, a convoluted and punitive tax system meant that companies and their directors were more likely to shield income by smuggling it to offshore tax havens, or siphon it off company books in other ways. However, according to the report, Russian companies are now starting to declare profits and pay meaningful dividends to shareholders, which has helped to power a 45% increase in the country's stock market.

' Back in the old days, people used to buy Russian stocks as speculative instruments, because they didn't earn any money,' William Browder, head of Hermitage Capital Management, told the WSJ. 'Now that they have started to pay dividends, Russian stocks are real investments, not speculation.'

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