Taxes Will Find You

If you don’t pay your Russian taxes, the boogie man will get you!

The Moscow Times, January 12, 1999

Tax Police Go Online in Debt War

By Yevgenia Borisova

The tax police in the Leningrad region have set up a web site on which it
has listed the tax debts of hundreds of companies in the Ireland-sized area
around St. Petersburg.

The site, www.taxpolice.spb.ru,
tells anyone who is interested that the biggest tax debtor in the region
is the Leningrad Nuclear Power Plant, or LAES, whose debt at the end of 1998
totaled 633.7 million rubles ($28 million). Russky Diesel in Vsevolozhsk,
which Ford considers as its potential partner in a planned venture to produce
cars in Russia, is fourth with 45.7 million rubles ($2 million).

Leningrad region tax police spokesman Alexander Markov said in a statement
published on the web site that while about 5 billion rubles in taxes were
collected in 1998 in the region, local enterprises still owe 2 billion rubles
to the budget. The tax Police apparently see the Internet Publication of
tax debts as a way to boost collection, “We are looking for new ways to reduce
tax debts,” Markov said in the statement.

The experiment is apparently without precedent. Western tax services believe
that, besides being illegal, publicizing tax debts is not a good way to build
trust. “It is not something that we would do here,” Claire Merrals, spokeswoman
for England Revenue, said by telephone from London on Monday. “We have very,
very powerful regulations that stop US from giving any information about
taxpayers at all. We cannot talk to anybody apart from the taxpayer and their
accountant on their tax matters.

U.S. Internal Revenue Service spokeswoman Michelle Lamishaw said from Washington,
that her country has similar rules. “In this country we have certain
confidentiality laws, and they protect us from giving out any information
about taxpayers to anybody except for taxpayers themselves,” she said.
“Protecting that information gives People more trust in the tax system,”
Lamishaw added.

Moscow Times September 2, 1998

Tax Man Pits Children Against Parents

By Valeria Korchagina Staff Writer

Russia’s increasingly desperate tax service has proved that even elementary
school is no refuge from the weighty cares of adulthood. Schoolchildren returning
to classes Tuesday after their summer vacation were greeted with a stern
message that they could be deprived a free education if their parents fail
to pay taxes.

The message, which carried heavy overtones of Soviet campaigns encouraging
children to blow the whistle on dissident parents, is part of a series of
unorthodox measures by the tax service to tackle Russia’s chronic tax evasion.
In 1997, tax authorities collected only 50 percent of the targeted amount,
and economists say that disastrously low tax revenues played a major part
in tipping Russia into economic crisis this fall. But the heavy-handed tone
of the tax service’s missive to schoolchildren will make many wonder if the
service is going too far.

The message starts amicably enough, congratulating pupils on the start of
the new school year. “We are delighted that in spite of the difficult financial
and economic situation in the country, schools and institutes of higher education
have once again opened their doors,” the message reads.

But then it goes for the jugular. “Every student and schoolchild must understand
that if their parents do not pay taxes, they thus deprive their child of
the opportunity of receiving free education, i.e. take his future away,”
it said. To make the threat more understandable for children, the message
even offered a brief explanation on how Russia’s free education is financed
from the federal budget. It ends: “The Russian State Tax Service wishes success
in the new academic year and financial prosperity to your parents. We are
sure that in the future you will become highly qualified professionals and
conscientious taxpayers.”

The message failed to specify how Russian kids could influence their greedy
parents to pay taxes, so children would have cheap breakfasts and new schools
built for them. But the message will have brought back memories of Pavlik
Morozov, the 14-year-old pioneer who, in 1932, informed on his wealthy father,
Trofim, to the Bolsheviks because his parents resisted the collectivization
of farms. Morozov was held up by Soviet propagandists as an example to the
nation’s youth.

As state coffers have emptied during the last few months, the tax service’s
propaganda methods have become more innovative. In May, Russia’s acting tax
chief Boris Fyodorov announced plans to create dossiers on 1,000 of Russia’s
richest citizens. Before his appointment, Fyodorov said the government should
jail pop diva Alla Pugachyova for tax evasion. Fyodorov’s predecessor, Alexander
Pochinok, planned to take aerial photographs of the area along Moscow’s
prestigious Rublyovskoye Shosse and use them to estimate residents’ incomes.
The tax service has launched a series of 30-second ads warning citizens that
tax evasion could lead to ailments ranging from impotence to insomnia.

Children have also been targeted before. The tax service has commissioned
a series of cartoons in which mythical characters who dodge their civic duty
come undone.

Moscow Times December 8, 1998

Tax Ads Appeal to the Heart and Purse Strings

By Andrew McChesney Staff Writer

The teacher hands a textbook to a group of students. Young hands eagerly
turn the pages. “Our schools don’t have enough textbooks,” a male voice gravely
says. The message flashes up: “No one will help Russia except ourselves.”
Then the teacher’s somber face fills the screen. “Please, pay your taxes.”
This is the scenario for a television ad in a new State Tax Service campaign,
billed as the first not to use scare tactics to encourage citizens to pay
their taxes.

The 15-second spots, which began appearing on the ORT, RTR and NTV television
stations last week, are a sharp departure from previous ads that warned viewers
they would face insomnia and impotence for cheating on taxes. “This is a
campaign of great social importance,” said Dmitry Korokov, general director
at Adventa advertising agency, which produced the four-month public awareness
campaign. “This is not like selling Snickers.”

Adventa, ranked the fourth largest Russian ad agency by Advertising Age last
year, has a client list that includes multinationals such as Unilever, R.J.
Reynolds and Johnson & Johnson. The new spots, which cost $10,000 to
$20,000 each to produce, are the agency’s first step into social advertising,
Korokov said. “The basic strategy is not to threaten people but to tell them
where the taxes are going and to show them what a bad budgetary situation
the state institutions are in at the moment,” he said.

A
second ad shows a pensioner retrieving an empty bottle from a park bench
as the voice intones, “Our old people live in poverty.” The camera zooms
in to the woman’s well-lined face. “Please, pay your taxes,” the voice says.
The other three ads focus on the state’s hospitals, ambulance services
and orphanages. But all five are simple and to the point: In vivid black
and white, they paint the social cost of unpaid taxes. “The idea of our campaign
was to be emotional and appeal to the senses of the Russian people,” Korokov
said. The ads are the brainchild of tax service public relations director
Renat Dosmukhadov, who was brought in under new tax chief Georgy Boos, Korokov
said. Dosmukhadov and other tax officials were unavailable for comment.

Korokov stresses the departure from previous tax service campaigns which
used a combination of flippancy and threats. Those aggressive ads ran alongside
minute-long cartoons aimed at children, in which fairy tale tax evaders go
to pieces after not paying their social dues.

Analysts said that with the new ads, the tax authorities seem to be either
trying to play a good cop, bad cop routine or they had for the moment given
up trying to harass taxes out of the people. All agreed, though, that while
the commercials could increase awareness, the authorities stood little chance
of improving their dismal collection. “Why don’t people pay their taxes?
Because they don’t trust the state,” said Scott Antel, a tax attorney at
Arthur Andersen. “When it cleans up its act, people will come into the system
because they too want services,” he said. “They want hospitals to work,
pensioners to get paid.”

The tax service collected only 52 percent of its targeted amount in 1997,
and this year’s revenues look just as grim. “The ads themselves are brilliantly
executed,” said a Russian analyst, who asked not to be identified. “But who
is going to believe the government is using tax money for textbooks and
pensioners when they spend hundreds of thousands of dollars dreaming up new
campaigns?”

Korokov, meanwhile, said Adventa was glad for the chance to try social
advertising for the first time, adding that he believed such campaigns may
become the wave of the advertising future in Russia. Adventa, like all other
ad firms in Russia, has seen orders drop as Western companies reconsider
their marketing moves amid the financial crisis.

“We see this as our debut in social advertising,” he said. “We think we will
see a lot in the upcoming few years because the ad market is shrinking so
we need to find new outlets.” Adventa has also prepared ads under the “No
one can help Russia except us” slogan for outdoor venues and the printed
media.

Natalya Ghittori, public relations director at Adventa, said the tax authorities
in the end decided where the ads appeared, but the agency had recommended
that they be placed as widely as possible.

4 February, 1999 Reuters News Wire, via Johnson’s Russia List

Russian tax quest goes cyberspace

By Patrick Lannin

MOSCOW – “Do you love Russia? Yes. Do you pay your taxes? Well…” runs
a series of television adverts by the Russian tax police, appealing to patriotic
but tax-shy people to pay up and keep the bankrupt country running.

The success of the campaign, accompanied by street posters proclaiming :”No
one can save Russia except we ourselves,” may be in doubt but its goal is
deadly serious: with a huge debt mountain, the government needs every tax
cent it can get. Emotional blackmail, forceful policing and an incursion
into the Internet cyberspace world are all in the plan to boost tax income
and help repay $145 billion of foreign loans and break a chain of 2.2 trillion
roubles ($100 billion) of internal debt.

“It is such a big and strategic task that we understand that the result
of what we are doing will come only after several years. It’s the next
generation, when people understand that taxes are part of life,” said Renat
Dos-Mukhamedov, head of public relations at the State Tax Ministry.

PENSIONERS APPEAL, POLICE BRANDISH AK-47S

As well as appeals to save Russia there is the loudly-proclaimed warning
on posters in Moscow and other big cities and towns: “Every Russian is obliged
to pay taxes which are legally set by the state.” The tax ministry also
has a series of TV adverts which show pensioners appealing for people to
pay up and hospitals with shelves bare of medicines.

The tax police have also run adverts showing their officers storming companies’
offices wielding AK-47 automatic rifles. All this effort is aimed at reversing
a situation where tax receipts in Russia are among the lowest in the world.

NO TRUST, NO TAX

The tax police and tax ministry have an uphill task to persuade people to
pay — many simply believe that their money is siphoned off by corrupt officials
— and there is also a huge shadow economy that is difficult to track. The
fact that much of the official economy is also run on a cashless barter system
also makes things incredibly difficult.

Added to the equation is the latest financial crisis, which has pushed many
banks close to collapse, seen people thrown out of work and the economy
contracting. Many have seen their savings frozen in collapsing banks amid
rumours that state officials benefited from the crisis and banks sent huge
sums abroad. In sum, a recipe for cynicism.

“The fundamental problem is the psychology of tax in this country. People
don’t trust the government or what they will do with the money nor do they
trust how they will be treated,” said Scott Antel, a tax partner at accountants
Arthur Andersen. Antel also highlighted problems with the tax rules, which
mean companies and individuals are faced with a big tax burden.

“It is not an economically stimulative system. It is not geared to allow
businesses to succeed and encourage productivity and growth,” said Antel,
in Russia for five years.

BILLIONS, TRILLIONS OWED IN TAX

All these problems have led to a huge backlog of owed taxes. The statistics
office said that as of October 1, 1998 the total budget system had tax arrears
of 253.9 billion roubles ($11 billion) while the federal budget had 146.4
billion of arrears. The debt problem has led to continuous battles between
the government and big tax payers such Gazprom, the world’s largest gas firm,
oil companies and the Unified Energy System company, which runs Russia’s
giant electric grid.

The companies themselves are not entirely to blame, as they are also owed
money for their services by their consumers, other industrial customers and
the state. This has led to a backlog of unpaid debt in Russia of 2.2 trillion
roubles. With Western guidance, a new tax code was drawn up and came into
force on January 1 this year. Aimed at laying out definitions and rules for
the tax system, it is still lacking a section in which tax rates would be
set.

Analysts said the new code is an improvement in assuming the innocence of
the tax payer in cases of dispute with the authorities and that the courts
seemed to be heeding the laws. However, Antel said simple changes would improve
the system and bring in rules which in the West are considered standard.

He cited in particular that items deductible for tax purposes such as in-house
training, interest payments and advertising are not deductible in Russia,
meaning companies were considerably more weighed down with tax. He also mentioned
a four percent turnover tax, which meant that even if a firm lost money it
would still have to pay tax. “The fundamental problems of the system are
not being addressed,” he said.

Cyberspace has been called into the fight as tax police in the second city
of St Petersburg use their Internet page to post pictures of tax offenders.
“We are waiting for help from those who care about the fate of teachers
and doctors, miners and soldiers, students and pensioners,” the web site
says. “And we can put a price on it,” it adds significantly.

These letters are underlined and in bold red print, linking to a page where
a reward of 10 percent of the amount recovered is offered to informants.

04 February 1999, Johnson’s Russia List

Comment on discussion of Russian taxes.

By Paul Backer, Esq.

It is always interesting to see a theoretic discussion of the RF tax situation,
almost inevitably I am struck that the country being written about is very
different from the one where I work and live.

A common idea that improved (read as more draconian) tax collection offers
the opportunity for the RF to address over $150 billion in its public debt.
It should be noted that arguably the RF does not have that much “public”
debt, many foreign investors were unpleasantly surprised that the famous
GKOs were not guaranteed by the RF, but rather by one of the official banks.

Leaving that aside, the TOTAL RF budget is roughly $20 billion and less as
the ruble’s fall continues. What portion of that $20 billion can be better
collected to help RF meet an annual debt payment burden not much less than
its annual budget? Particularly when the grey and black sectors of the economy
arguably outstrip the public sector, ask Goskomstat guys when they get out
on bail.

Leaving aside possible rimpacts of paying taxes, most RF commercial entities
don’t want to pay taxes at any price. No commercials, raids, etc. will make
them want to pay. If they wanted to pay, there are a number of legal and
fairly easy ways to pay taxes in the RF for less than 50 cents on the dollar,
let alone assessed value.

There is a methodology allowing payment of tax penalties and fines for less
than 33 cents on the dollar. Incidentally debts to many RF banks can currently
be paid through “(v)zaimozachet” for roughly 40 cents on the dollar. As a
working attorney I have seen these transactions get done.

Yet, many companies simply don’t pay, b/c it makes business sense for them
not to and simply because they don’t believe in their government. The bottom
line is that RF nationals don’t see any benefit to paying taxes.

The RF gov’t is seen (fairly or not) as impossibly corrupt and until that
perception changes, no amount of commercials, cheaper methods of paying or
ski masked raids on business enterprises are going to change that. The only
way for change is for Russia to see the emergence of political leaders such
as Giuliani (NY), Carey (sic?) (Philadelphia) or even, that historical fave,
Dewey who made a career on fighting corruption.

If fighting corruption is a losing proposition no one will do it, and things
will continue as they are and the RF will continue in the current crisis
where virtually the only way to get taxes paid is through direct coercion.