Russian Tax Amnesty Begins

by Tatiana Smolenskaya, Tax-News.com, Moscow

08 March 2007

A tax amnesty has gone into effect in Russia to encourage non-compliant taxpayers to regularise their tax affairs in an attempt by the government to boost tax revenues and reverse capital flight from the country.

Those declaring monies to the authorities under the amnesty, which commenced on March 1, will escape prosecution in return for paying income tax at a rate of 13% on the previously hidden assets. Incomes undeclared since before January 1, 2006 will be exempt from penalties for personal income tax evasion. The amnesty will close on December 31, 2006.

In a bid to tempt more declarations, the amnesty does not require that taxpayers have any contact with tax officials, and payments can be made directly into a special Federal Tax Service bank account. According to the government, this information will not be used as evidence against individuals in criminal of administrative cases. Those previously convicted of tax evasion and other fiscal offences are barred from using the amnesty.

However, tax experts are warning that the tax amnesty legislation does not afford adequate protection against possible prosecution for those considering declaring unpaid tax, especially those already guilty of related financial crimes such as money laundering, currency and customs violations. Consequently some predict that the scheme will yield little for the government in new revenues.

President Vladimir Putin is hoping that the amnesty will result in the repatriation of at least some of the $160 billion in capital which has fled the country since the collapse of the Soviet Union in the early 1990s. Surprisingly, about $41 billion was repatriated to Russia last year, but it remains to be seen whether the trend towards capital flight has been reversed.

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