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Russia's Regional Lawmakers In Spotlight Over Sales Tax

Tatiana Smolensky, Tax-news.com, Russia

01 February 2001

There have been calls in Russia for regional governments to amend their sales tax laws, according to a report in the Moscow Times. Whilst the Constitutional Court is not challenging the legitimacy of the sales tax itself, it has asked three regional governments - namely those of Chelyabinsk, Kirov and Chuvashia - to put right certain irregularities in their sales tax laws.

The rub is that the sales tax is a regional tax, but is nonetheless governed by a federal law, which itself needs to be adjusted. The federal law, called "On the Foundations of the Tax System in Russia", stems from 1991 and is due to be replaced by the second part of the Tax Code. However, this is still not fully approved by the State Duma. This outdated federal law has been declared unconstitutional by the Russia's highest court.

Lawmakers in the three regions have been told to deal with the inconsistencies, even though the federal authorities are largely responsible for them. It is widely agreed that a separate law introducing and defining the sales tax should have been passed at a federal level. What has hitherto been unclear is who exactly should pay the tax and who should administer it - the regional or municipal governments?

According to estimates from Russia's Economic Expert Group, the sales tax made up some 5 per cent of the total tax take in the regions last year. Despite the problems with it, the Constitutional Court has been reluctant to totally scrap the tax. The court issued a statement which read: 'Immediate abolition [of the tax] would undercut the fiscal performance [of the regional governments] and thus violate individual rights and freedoms.'

The court has also refused to lower the tax rate, which can not exceed 5 percent according to federal regulations. In the Moscow Times, Alexander Ustinov of the Economic Expert Group said: 'The most likely outcome is that regional authorities will bring their legal paperwork in line with the court's requirements.'. This is expected to happen automatically after the approval of the second part of the Tax Code.

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