Russian tax reforms get rave reviews

The world must have really gone topsy turvy. A column in the National Review lauded a revolutionary tax reform package put in place by Russian President Vladimir Putin. "The once-Communist superpower now stands to the right of publisher Steve Forbes on taxes," the conservative Review noted.

Russians are now enjoying a 13-percent flat tax since January 2001. It will be recalled that Mr. Forbes advocated a 17-percent flat tax and made it the cornerstone of his two presidential bids. Now it seems that Putin, who once served on the KGB, the Russian communist government’s secret police, has outdone the conservative American billionaire.

The old Russian system featured three income-tax rates: 12, 20, and 30 percent. The top rate kicked in at the ruble equivalent of $5,000 in taxable income. In contrast, the US has six tax rates: 10, 15, 27, 30, 35, and 38.6 percent. The Philippine system is something similar to the American system and is capped at 32 percent.

The National Review columnist observed that "Russia’s single-rate tax is reasonable and comprehensible." More important, The Review reported that after just one year, the results of this law already look positive. It cited Hoover Institution scholar Alvin Rabushka’s observation in a Feb. 21 analysis for www.russiaeconomy.org.

The Hoover scholar wrote that "the 13 percent flat tax has exceeded the expectations of the government in terms of revenue. For the vast majority of taxpayers, its implementation is simple, and no forms need to be filed." Adjusting for currency fluctuations, Rabushka adds, "real ruble revenues increased about 28 percent."

The Review columnist reports that this initiative "is establishing the custom of paying taxes in Russia." Senior Duma member Dr. Konstantin Remchukov told the columnist that "it’s greatly simplified everything." Three years ago, tax revenue equaled nine to 10 percent of Russian GDP. By last November, that number had grown to 16 percent.

The Review also quoted Dr. Richard Vedder, an Ohio University economics professor and board member of the National Taxpayers Union, who observed that "there was a huge, monstrous non-compliance problem with the old system… people essentially operated in the underground economy. There were a lot of payments in kind where people were not paid in cash but in goods to facilitate tax evasion. That problem, from what I understand, has not totally disappeared but has dramatically declined in the last year or two."

Beyond the flat tax, President Vladimir Putin has signed legislation to chop the corporate tax from 35 percent to 24 percent, effective last Jan. 1. The Review also reported that "Putin hurled the double taxation of corporate income onto the ash heap of history."

From FreeRepublic.com, comes a report that this flat tax reform has also received "a thumbs-up from operators and analysts of small- and medium-size businesses." The radical proposals, hailed as revolutionary in their scope and implications, would fix a flat tax rate of 20 percent on annual profits or eight percent on gross turnover for businesses with up to 20 employees or 10 million rubles (about $320,000) in yearly revenue.

Putin said the proposals would be submitted this month to the State Duma, the lower house of parliament. If approved, the new tax system could go into effect as early as 2003. The scheme would replace several taxes and fees now imposed on small- and medium-size enterprises, or SMEs. These include the 20-percent value-added tax, or VAT, as well as the five-percent sales tax and lesser taxes on property and payrolls.

In total, taxes and regulatory fees in Russia eat up more than 50 percent of a typical SME’s operating capital each year, experts say. The unsurprising result is that many businesses operate in the gray economy, hiding at least some of their transactions and financial data from tax authorities. This is something we are all very familiar with in the Philippines, specially after local government received authority to impose their own taxes.

The FreeRepublic reports that "many heads of SMEs have long complained their tax burdens are excessive." Talk to small and medium scale entrepreneurs in the Philippines and you hear the same complaint. Yet, the small and medium scale enterprises provide the vast majority of employment and, thus far, have received lip service support from Ate Glo and most other politicians.

At least in Russia under Putin, they are doing something right. "The fact that the government is taking these concrete measures to reduce the tax burden, and creating a business-friendly atmosphere for SMEs, is a positive step in the right direction," said Veniamin Kaganov, director of the Institute of Business and Investment, which provides consulting services to such enterprises.

Likewise, Putin’s tax overhaul aims to end SMEs‚ practice of concealing real revenues and employee wages in order to pay little or no tax. Also, tedious accounting procedures would be eased, as the proposals envision quarterly tax filings instead of the current monthly practice. I brought up precisely these same problems to BIR chief Willy Parayno when he visited the Tuesday Club at EDSA Shangri-La recently. There is a need to make our tax system reasonable, simple and user friendly for the taxpayers and with the minimum of discretion for tax collectors so as to reduce opportunities for corrupt deals.

We have reformed our tax system a number of times and yet things are still as bad, if not worse. The inability of government to collect the right taxes and the massive corruption in the BIR are proof of a tax system that must be made as creative, simple yet revolutionary as in Russia.

Maybe we should start talking to Russian tax experts and not just to those American experts of Agile. The Russians are more attuned to a developing economy like ours and may have better strategies to deal with problems like the underground economy, tax evasion and corruption.

Spearfishing

Remember that story about this arrogant Chinoy who was caught spearfishing in a protected marine wildlife preserve in Mindoro? Well, reports have it that he is dropping names a-plenty to scare off the filing of criminal charges against him. Aside from dropping the name of Erap and son JV, he is also reportedly dropping the name of yet to announce presidential candidate, ECJ, as if Danding cares to save him. Certainly gives Chinoys a bad name.

But some of those involved in prosecuting the case are indeed getting a little scared, including a volunteer lawyer. Luckily, old wealth heiress Jamby Madrigal does not scare easily. She vowed to pursue the case even as two of her relatives are no longer talking to her. Jamby wants to prove that when she talks about preserving the environment, she means it.

That is so much unlike two senators who have made extreme efforts to present themselves as committed to the environment. When these pro-environment divers tried to get a statement of support from Senators Loren Legarda and Robert Jaworski, they came up empty handed. Maybe Jamby will yet prove she could have been the best senator this country failed to elect.

Sunburn

Marilyn Mana-ay Robles forwarded this one.

A man fell asleep while sun bathing and suffered a severe sunburn to his legs. He was taken to the hospital. His skin had turned a bright red. It was very painful and had started to blister. Anything that touched his legs caused agony.

The doctor prescribed continued intravenous feedings of water and electrolytes, a mild sedative and 100 mg of Viagra.

Rather astounded, the nurse inquired, "what good will Viagra do him in that condition?"

The doctor replied, "it will keep the sheet off his legs".

Boo Chanco’s e-mail address is [email protected]