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Russia's New Tax Code Opens Up Legal Loophole

Tatiana Smolensky, Tax-news.com, Moscow

28 February 2001

A legal loophole has emerged in Russia's newly implemented 13% flat tax rate on personal income that could let Russian tax payers avoid paying last year's income tax bills. The new tax code introduced last year by President Vladimir Putin took effect from January 1 2001 and put Russians among the world's least taxed people. However, because the new code became law before the end of the last year's tax payment deadline, which is not for another two months, there is no actual legal requirement to force individuals to pay their income tax bills for the year 2000.

This is according to a report in the Moscow Times which quotes Tax Minister, Gennady Bukayev, as saying: 'The legislation has not stipulated certain transitional conditions. Our taxpayers are sharp. They quickly take advantage of these flaws.' Mr Bukayev confirmed that his department was working on amending the loophole as he explained: 'Our task is to find the lacunae and close them by making amendments to the legislation in force, but it is much harder for us to do this now. Previously, we were able to close the gaps by issuing instructions, now we no longer have that right and can only make recommendations for changes to the [State Duma].'

However, Vera Semenenko, a tax expert at Arthur Andersen, said that it is unlikely that many tax payers will want to come up against the Russian Tax Ministry. It is a process, she told the Moscow Times, that can be 'painful and costly. Most likely, very few people will want to use [the loophole]; it is more of an intellectual exercise.' This is particularly true for foreigners who live and work in Russia because there are rigorous registration processes that can easily identify them and bring them to trial.

If taxpayers do decide to utilise the loophole it could cost the government billions of rubles. Tax evasion has been commonplace in Russia and the whole point of the shake-up in the Russian tax system was to tackle this growing problem - not add to it in the short-term.

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