Decree No 1212 of August 18, 1996 is designed to improve tax collection by preventing tax evasion and streamlining cash and non cash turnover. Among other measures, the decree orders enterprises in arrears of payments to the government to open settlement accounts in banks or credit institution within the Russian Federation. Those accounts are referred to as accounts of enterprise in arrears. When requested by the appropriate tax authorities, banks and other credit organizations are required to provide data about the transaction of enterprises holding these accounts. Taxation organ may refuse to register the account of an enterprise in arrears in case there are no funds available on the correspondent account of the bank or other credit organizations. An interesting aspect of this decree is that the government finally began to crack down on misrepresentation "in case of noncompliance with this requirement or intentional provision of false information in the notice submitted to taxation organ enterprise in arrears that had performed the transactions in question will be fined by the taxation organ in the amount of the transaction value". It has proposed to improve the tax system by scrutinizing financial transactions through banks. If an enterprise opens a bank account, the bank or other type of credit institution must immediately inform the tax organs about the accounts for tax purposes. Such tax policy will let the tax agencies observe tax payments more efficiently as everything will be recorded.
Presidential Decree No 1212 of August 18, 1996 also introduced policies concerning cases containing the circumstances stipulated in the Law of the Russian Federation on Insolvency (Bankruptcy) of Enterprises, the Federal Department on Insolvency (Bankruptcy) at the State Property Management Committee of the Russia Federation shall file with arbitration court request to institute proceedings on insolvency (bankruptcy) against enterprises that have repeatedly violated this Decree during one calendar year. As it was with collective farms and state farms, enterprises can just change their names and continue to evade taxes. An important issue related to insolvency is loss of massive amounts of jobs and what will workers and one enterprise" towns do for a living and revenue.
On the bases of the decree, the government has widened its crackdown on tax evaders--adding several leading oil companies to a list of tax delinquents that might be forced into bankruptcy court unless they pay their arrears. The move was the latest in a series of desperate measures the government is taking to boost tax collection and mend its thread bare budget. The government hopes that by threatening major tax evaders with bankruptcy, they will scare the country's errant tax payers into filling empty coffers. Major companies targeted for bankruptcy can avoid insolvency proceedings, if their accounts showed the government owes them an amounts equal to their tax debts for fuel supplied to state organizations.
The most recent step in fighting tax evaders was Russian presidential decree No 1428, (dated (October 11, 1996, which created a Processional Emergency Commission (the Commission) on strengthening fiscal discipline. The major principals and objectives are:
. Control over the timely and full payment of taxes and customs and other compulsory payments;. The elaboration of measures to secure a full-scale collection of taxes and other compulsory payments;. Securing the legality and efficiency of the work of tax and customs, as well as tax police agencies;. Control over the timely and special-purpose use of the resources of the federal budget and state extra budgetary funds.. Take decisions to carry out checks of the financial and economic activity of legal entities and compliance by individuals and entities with the tax, customs and banking legislation of the Russian Federation;. Check the operations of tax and customs bodies;
. Organize check of the timely and special-purpose use of the resources of the federal budget and state extra budgetary funds.
In addition, the President granted broad powers to the Commission to meet the objectives of the decree and secure its accountability.
Monetary Policy
Interest rates, much to the chagrin of reformers, in the past barely reacted to currency stabilization and the ensuing drop in inflation. Little confidence existed in the sustainability of reforms while inflation expectations remained high. In 1996, interest rates finally started to come down--albeit slowly. Real interest rates, however, are still very high. As recently agreed by the Russian government and the IMF, the ruble is due to become convertible by 1997. Better access to the ruble market could thus lead to a rapid increase in international interest in the currency. Nevertheless, the ruble is trying to join the club of respectable currencies. Due to the establishment of a crawling peg, the currency's downslide is almost under control. A generally more stable economic environment and high interest rates could make the ruble more attractive. The ruble's recent past has been eventful to say the least. Between January 1992--effectively the start of economic reform under Yeltsin--and March 1995,the currency depreciated by a massive 2,130 percent. In the second quarter of 1995, an over-restrictive monetary policy led to a severe shortage of the currency which then duly appreciated by 15 percent within three months. As concerns rose that too rapid currency appreciation would further destabilize the economy, the free-floating ruble program was abandoned and a 'ruble corridor', which envisaged further depreciation but within predetermined limits, was introduced. The ruble corridor program has proven to be quite successful. The Central Bank, which has been intervening repeatedly in the market, has managed to keep its foreign exchange reserves at a satisfactory level, and the business community has been able to rely on a more predictable exchange rate trend. In July 1996, the 'fixed' ruble corridor (the upper and lower limits of which only had to be redefined every few months) was transformed into a 'variable' ruble corridor, with the band shifting on a daily basis. Under this program, monthly depreciation now stands at around 1.5 percent. By the end of December 1996, the exchange rate against the dollar should have reached Rb 5,700/US $.
Russia's monetary environment started showing promising signs of stabilizing in 1996. During 1995, inflation reached 200 percent by December. 1996 is drawing to a close and the inflation rate seems set to fall to 19 percent. The central bank has been pursuing a very consistent policy lately, so its goal of maintaining monetary stability looks credible. Moreover, low inflation is one of the conditions imposed by the IMF in return for its monthly credit and it is therefore hardly in the government's interest to start emission based means of financing the budget deficit. The main risk for inflation could come from a high budget deficit due to low tax revenues. Financing the deficit has become easier than in the past due to good international credit ratings--for example, IBCA: BB+, Moody's: Ba2.--are making it cheaper for Russia to borrow on the foreign capital markets.
A key element of Russia's macroeconomic stabilization program has been a tight monetary policy to soak up excess rubles floating around the Russian economy and fueling inflation. That policy's success is among the factors that drove T-bill yields up by 26.6 percent Monday to an annualized 121.4 percent on the secondary market. Just a month ago, yields stood at 53.33 percent, according to Skate-to Press Consulting Agency.
The reason for the jump, analysts say, is simple supply and demand - little ruble supply in the market at a time when government spending demands revenue. The banks do not have the money to invest in GKO (treasury bills) at 3 percent per month--but they will find the money to invest for 10 percent per month. Russia's monetary expansion under the IMF agreement is not to exceed 3 percent, compared with 9 percent in December. Combined with promises by Yeltsin to repay wage arrears and ease the impact of reforms on the social sphere, that tight policy has forced the government to raise yields as a lure to banks to loan the government money.