Russian Budget Sets US$1 Billion Audit Revenue Target

by Tatiana Smolenskaya, Tax-News.com, Moscow

25 August 2005

The Russian tax service is aiming to collect an additional US$1 billion in tax revenues from company audits this year, despite an earlier pledge that it would alleviate the concerns of business by not setting a tax collection target.

According to the 2006 draft budget, drawn up by the Ministry of Finance, it is assumed that the tax department will collect 28.5 billion rubles in additional tax from company audits during 2005, effectively setting a revenue target for the remainder of the year. Furthermore, Interfax has reported that the Finance Ministry is expecting to collect 61.6 billion rubles from corporate audits in 2006.

The news is another example in a growing list of instances where the actions of government departments have seemingly been at odds with the professed goals of Russia's political leadership, which is attempting reconciliation with the investment community.

In his annual state of the nation address to parliament in April, Russian President Vladimir Putin urged the tax authorities to cease menacing the business community with claims for back taxes, in a message designed to reassure foreign businesses that their contribution to the Russian economy is welcomed by the government. He went on to urge the tax authorities to renounce "any sort of collection targets" and added that tax investigators "have no rights to terrorize business". The Federal Tax Service duly ceased issuing collection targets to its regional departments in June.

Confidence in the Russian business environment has taken a severe battering after the highly-publicised trial of former Yukos boss Mikhail Khodorkovsky, who has been jailed for nine years after being found guilty of tax evasion, fraud and embezzlement. It is widely believed however, that the trial had more to do with Khodorkovsky's political ambitions than with tax crime.

The breaking up of Yukos after multiple multi-billion dollar claims for back taxes, not to mention back tax claims against firms across many other sectors have exacerbated the uncertainty and insecurity felt by many investors in Russia over the past year.

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