In a Word

Promises, Promises

Aug 30, 2011:

The road to hell is paved with good intentions.

In March Dmitry Medvedev asked the government to reduce national insurance contributions, a levy on payroll. In June, at the international economic forum in St. Petersburg, the President announced a reduction in NIC's rates from 34% to 30% (for small non-trade businesses - from 26% to 20%). ‘This is certainly not a radical drop,’ he said, ‘but it is a landmark and a favourable move for a large number of small and medium-sized businesses’.

So it seemed as if the matter had been settled.

The Ministry of Finance, however, then proposed to increase the levy on the wealthy in order to compensate for lost revenues, and by wealthy they meant those earning over 512,000 roubles ($17,600) a year. The Ministry of Economic Affairs insisted that no additional tax should be set.

A heated discussion followed, in spite of the fact that it was immediately clear that the widely touted tax cut would turn out to be a tax rise for the middle class.

The debate is now over. Yesterday the Ministry of Finance published ‘The Main Directions of Tax Policy of the Russian Federation in 2012 - 2014’. According to this document, already approved by Vladimir Putin, the rate of payroll tax will be set at 30% for wages up to 512,000 roubles per year plus 10% on amounts above this threshold.

Police May Have Played a Part in Politkovskaya Murder

Aug 24, 2011:

The alleged organizer of the murder of journalist Anna Politkovskaya Lieutenant Colonel Dmitry Pavlyuchenkov, a former senior police officer, has been detained, said a spokesman for the Investigative Committee of Russia.

According to the investigators, Moscow police were involved in the murder. ‘Pavlyuchenkov … instructed his subordinates to keep the journalist under surveillance in order to find out the routes and time of her daily movements around town’, the spokesman said.

The investigators also indicated that they know who ordered the murder.

Politkovskaya, who won international acclaim for her investigations into human rights abuses in Chechnya, was shot dead in her apartment building in Moscow on then-President Vladimir Putin's birthday in October, 2006. The Investigative Committee of the Russian Federation, a body separate from the police force, was formed in January, 2011.

PayPal has (not) discovered Russia

Aug 23, 2011:

From September 24 PayPal will start sending money to Russia. So far, for fear of Internet scams, the company has restricted transfers to this country.

In 2006 PayPal – and, by the way, one of its co-founders is a Russian - allowed Russian residents to open accounts, but they could only send money. Currently, a Russian resident can get money from another PayPal user in special cases only such as, for example, a refund on undelivered merchandise from eBay.

They are rumours that PayPal plans to open an office in Moscow by the end of the year. Russia, after all, is one of the largest and fastest-growing markets in the world: in 2010 online payments turnover here rose by 75% reaching $2.5 billion.

According to the newly published tariffs, the charges will vary from 0.4% for transfers from Scandinavian countries, 0.5% - from the US, Canada and Western Europe to 1% from Eastern Europe (including Russia and Ukraine) and 1.5% from the rest of the world.

Update: On the 30 of August PayPal announced that it will not start money transfers to Russia as earlier reported. ‘PayPal currently has no plans to launch additional services in Russia in September of this year,’ the statement said.

Russia and Ukraine were included on the list of countries for payment reception by mistake, PayPal said. ‘This mistake has been corrected,’ the company said, ‘Russia and Ukraine are very interesting markets, which PayPal is intently studying. Our goal is to provide PayPal services everywhere there is a noticeable demand but this needs time.’

Are State Contracts Worth the Bother?

Aug 22, 2011:

About 80% of sureties and bank guarantees submitted by bidders on state contracts are fake, said Ekaterina Solovieva, deputy head of the Moscow department of the Federal Antimonopoly Service of Russia. Ms Solovieva commented on a case where a winner of a state tender was refused a contract because of a false bank guarantee.

The Treasury is the largest buyer in Russia. The federal government and its various agencies procured more than $170 billion worth of goods and services last year and its potency as the largest customer in the land is growing rapidly: within ten years the amount of everything, from pins and websites to luxury cars and airplanes, purchased by the Treasury rose twenty times. And, this magazine believes, the growth will not stop there.

There are - of course - talks of corruption in the system. President Medvedev once said that $34 billion is stolen on the way each year and this is surely not far off the mark. Yet researches show that public procurement in Russia is getting better. More small and medium sized companies without ‘the right connections’ win state contracts and, though a large stake of taxpayer's money is still going to the ‘right hands’, something is left for mortals.

Short Lives of Codes

Aug 18, 2011:

In theory, a code is a legal act that purports to cover a whole area of law. Codes overrule other laws, statutory instruments or court rulings. They are adopted or modified by a special procedure. The cornerstones of our legal system should be slow and difficult to change.

Alas, all is vanity and vexation of spirit. Research conducted by company Garant shows that Russian codes get changed every few weeks. All but one can’t survive a year without a modification of some sort. The Tax Code, for example, is amended every 18 days or 20 times a year. Every three months Parliament adopts new versions of the Civil and Labour Codes. The most stable is the Family Code which has managed to last unchanged for over year.

No More Cheap Cigarettes

Aug 12, 2011:

A draft law to increase the rate of excise duties on cigarettes threefold has been submitted to the State Duma. The bill also seeks to double taxes on vodka and brandy (a 2.2 increase), on wine - by 60% and on beer – by 80%.

Earlier, Russian presidential aide Arkady Dvorkovich said that the two most important elements in the struggle for the health of Russian people are to curb the sales of illegal alcohol and to set ‘dizzying’ prices for cigarettes. ‘We have a traditional fear of hiking up the price of vodka. Everyone thinks it would lead to illegal production and the use of surrogates – and there is some truth in this,' Dvorkovich admitted. Yet, ‘if we continue to increase excise duty twice or three times per annum for the next three years, everything should be all right'.

Although population levels in Russia keep falling, cigarette consumption is growing. in just five years, for example, it has increased by 30 percent. The spread of tobacco-related diseases here, where every second citizen smokes, is enormous. In recent years, chronic obstructive pulmonary disease - the main cause of which is smoking - has gone up from 12th to 4th place in Russian mortality statistics. Lung cancer, which in nine cases out of ten is caused by smoking, affects about 50,000 men every year.

Russia imposes ridiculously low excise on cigarettes – only €0,19 per pack which is eight times less than in Poland, 15 times less than in Germany and 25 times than in the UK.

Amendments to Tax Treaty with Cyprus

Aug 10, 2011:

Russian Government has submitted the Protocol amending the Russia-Cyprus Double Tax Treaty to the State Duma for ratification. It was signed on October 07, 2010 during the visit of President Dmitry Medvedev to Cyprus. The Protocol seeks to tighten rules on tax breaks and information exchange.

Thus, the Protocol introduces the article ‘Limitations of Benefits’ allowing the Cypriot authorities to refuse tax benefits where ‘it was established … that the main purpose (or one of the main purposes) of the creation or existence of such resident was to obtain benefits’.

Article 26 (‘Exchange of Information’) of the amended treaty will extend the exchange of information between the countries to tax violations, not just to information about taxes as it is currently the case. Banks and other financial institutions, nominee shareholders, agents and trustees will not be able to refuse giving information to the authorities.

The amendments will come into force on January 1 of the year following ratification

Russia Needs Smaller Police

Aug 3, 2011:

A small police is a bad thing – very soon crime spirals out of control and we feel, on a very personal level, the need for more men and women in uniform. Too many policemen is worse: research conducted by St.Petersburg’s European University shows that too much control stifles the economy and, astonishingly, undermines the rule of law. Yet the worst thing of all is a police force which is large and poorly paid.

The Russian police force is one of the most numerous and underpaid law enforcement agencies in the world. The federal budget spends less than $9,000 per member of the force. Since March 183,000 police officers have been dismissed and another 48,000 will have to go by the end of the year, as the Russian President Dmitry Medvedev has confirmed. Thus 230,000 policemen – an entire police force in Germany or France - will be laid off. With nearly one million still in service, this is, this magazine hopes, just a beginning.

Orwellian Law is Dead

Jul 29, 2011:

The Supreme Commercial Court of Russia has ruled that all charities are equal. Russian non-profit organizations do not have to pay income tax on donations from their foreign sponsors. Whether the money come from within the exclusive club of twelve organisations selected by the Russian government is irrelevant.

In 2006 – 2008, Human Rights Association "AGORA" received help from two American charities TIDES Foundation and National Endowment for Democracy. Russian tax authorities, as they often do, claimed that this money is a taxable income.

Indeed, according to article 251 section 1(14) of the Russian Tax Code contributions from foreign organisation are tax-exempt grants if the payer is included in a special list composed by the government. If there is a case about a direct link between taxation and civil liberties, this is it. Neither TIDES Foundation nor National Endowment for Democracy is on the list.

The Supreme Commercial Court cannot annul a law. However, it has ruled that the receipts are donations according to article 251 section 2(1) of the Tax Code and, therefore, are not

Creation of IP Courts Delayed

Jul 26, 2011:

The government did not approve the draft law establishing a special court for intellectual property rights. It appears that the court will not materialize by 2012 as planned.

According to President Medvedev such a court would improve Russia's image as a country with poor copyright protection. Yet the President's word was not enough: since its introduction a year ago the bill has not even reached a first reading.

Vladimir Putin’s government does not oppose the idea in principle but seems reluctant to push this costly step-child of the Skolkovo initiative forward. There are technical objections too.

The government does not like the court to consider all cases collectively, including those of the first instance. Also it believes that the legal position of the professionals involved in advising the court needs clarification. According to the draft law, the same judicial body would act as the court of the first instance and the court of cassation.