One of the principle changes
in the tax system, which will be discussed by the Duma
today, concerns the transition in VAT payments with CIS
countries to the principle "country of destination".
What does this mean for Russia?
First, this implies a preservation and
expansion of CIS markets.
Russian goods which are often taxed in both Russia and
a CIS country
(i.e.
are taxed twice) lose in the competition. Our exports
accounted for
19.5% of
the total volume of exports in 1997. This figure fell
to
14.9% in 1999 (cf., 192.% in 1998). At the share of imports
from CIS
countries in the total volume of imports grew from 26.8%
to
27.6% (cf. 25.9% in 1998). Thus Russia paid dearly for
its adherence to
dubious principles. How can this problem can be resolved?
There are two
solutions.
The government proposes the signing of
bilateral treaties with each CIS
country on indirect taxation issues and the transition
to the principle
"country of destination" individually with each
state as soon as these
treaties are ratified, rather than a simultaneous transition
with all
the
CIS countries.
This approach has serious drawbacks.
Firstly, the negotiation process on this
issue has been protracted for
many
years already and it is highly unlikely that it will finish
soon
(especially
with some of the countries).
Secondly, it is absolutely pointless to
set different regimes for
different
CIS countries.
For example, we transfer to the "country
of destination" principle with one of the countries,
but retain the previous procedure with another country.
This has a predictable result: Russia's exports to the
second country will be re-routed through the first country;
however, Russia will not tax the imports
from the second country.
The position of the government on the
"country of destination" issue is
not
consistent. For example, the draft of the Tax Code submitted
by the
government and adopted by the State Duma at its first
reading in 1998
envisaged an unconditional transition to the principle
"country of
destination" with all CIS countries.
The motivation of opponents to the principle
"country of destination"
is clear.
In addition to certain efforts required
to consolidate tax control and
thereby prevent false exports, the spheres of influence
of some federal
departments will be reduced. For example, the Ministry
of Taxes and
Duties
will lose a part of the financial flows that it currently
controls, as
the
new procedure stipulates that the State Customs Committee
with be
responsible for this control.
An alternative and, we should add, more
radical solution of the problem,
was
offered by the Budget Committee of the State Duma.
This approach envisages the establishment
of the "country of destination" principle in
the law "On VAT" and its simultaneous introduction
for all the CIS countries. To protect budget revenues,
it proposed excluding oil and natural
gas from this regime (i.e. they should be taxed in line
with the present procedure).
Excluding oil and gas, Russia's trade
balance with the CIS countries
for
the past few years has been negative. Consequently, the
transition to an
internationally accepted principle of
accepting VAT will yield
additional
revenues to the Russian budget, amounting to about $400
mln.
Moreover, here we did not consider the
impact of the increase in the
export potential of the domestic industry. For example,
finance also
reveals
the advantages of the radical option.
To provide normal conditions for the transition
to a new procedure of
VAT
collection, the terms for introducing this norm are set,
beginning form
July
1, 2001. In other words, the government will have a year
to prepare for
the
new conditions of work and conduct, if necessary, negotiations
with the
governments of the CIS countries.
If this proposal is not accepted, what
will be the essential changes in
the
law "On VAT"?
Now it is difficult to say anything about
any reduction in the tax
burden
with regards the VAT, as no calculations have been provided
here.
This also applies to a reduction in the
list of tax concessions. Here
decisions were as a rule taken with eyes closed. We can
only note here
that
the volume of the article on tax concessions has increased
considerably.
Also it remains unclear whether such concessions
(especially on VAT) are necessary
for tax reform and why the wording of the present concessions
was changed substantially. For example, today medical
goods are exempted from VAT: the new law devotes almost
a page to this concession and devotes a separate line
to lens and glasses frames.
It will become significantly harder to
apply the law, as it is
written in an unusual form for Russian laws. Here too
state goals are
not
met.
If we adhere to the aforementioned criteria,
we will see that the reform
of
VAT already occurred at the end of 1999, when the Duma
made changes to
the
present law "On VAT".
Those changes were more radical and obvious;
however, the present
version of
the chapter "VAT" contains only one "revolutionary"
norm - transition to
the
"country of destination" principle in trade
with the CIS countries.
And another "revolutionary"
change concerns the inclusion of individual
entrepreneurs in the group of VAT payers. Now they will
all have to keep
accounts books to obtain their annual
exemption from the tax payment.
This
new provision is dubious, as an additional burden on all
entrepreneurs
has
been introduced to prevent tax evasion on large turnover
by some
entrepreneurs.
If the government insists on suspending
the transition to the "country
of
destination" principle in trade with the CIS countries
for the future,
then
the rationality of the adoption of this chapter will be
cast in doubt.
