Russia gets tough with tax dodgers

The billboards around Moscow make the point as clearly as anyone can. A smooth young man in a suit glares out at the world. Like Uncle Sam, he is making a passionate appeal to the nation's patriotic impulses, although he points not with his finger but with a mobile phone. "I have submitted mine," says the logo, "Have you?"

Today is the deadline for Russians to hand in their personal income tax returns. For the nation's beleaguered treasurers it is a decisive moment, an opportunity to discover if the government has made any progress with a massive campaign to bring an end to an epidemic of tax-dodging.

The problem is one of the country's gravest economic maladies, spoiling efforts to switch to free market economics, and souring its relationship with its lenders at the International Monetary Fund. Tax experts estimate that only about half the country's personal earnings yield income tax, adding to a revenue collection crisis that has reduced budget forecasts to gibberish. The rest of the cash swirls around illegally in the large black economy.

This year, the government has gone to unprecedented lengths, bombarding the 148 million population with intimidating television advertisements. One shows a man caught in the cross-hairs of a telescopic sight. "The choice is yours," growls the announcer.

Alarming footage has been screened showing the tax police's 500-strong Swat team in action. Their equipment includes grenades, tear gas, AK47 assault rifles; mountaineers and snipers are among their ranks. True, they are normally used to pursue mafia-run businesses and other non-paying companies, rather than individuals. But that is beside the point. The cash-starved authorities are quite happy to scare the public into coming clean.

Tax gathering in Russia is no easy task. Last year - when Russia managed to raise only about two-thirds of taxes - 26 tax officials were killed and 74 wounded in the line of duty. Several dozen have had their homes burned down, and at least one was kidnapped.

The violence is a result of a running war between the tax authorities and non-paying corporations. (These owe billions: half of all Russia's overdue tax is owed by only 73 enterprises.) But it deepens the rift in a country where the federal authorities are seen as inept and corrupt.

Distrust of officialdom is a central part of the problem. In a recent survey by the Russian Marketing Research Company, 61 per cent agreed that tax evasion is not a crime. "One of the greatest sources of this in was the amount of money that the government spent on the military in Chechnya," said Peter Reinhardt, personal tax manager with Ernst & Young in Moscow.

Broadly, the top rate of income tax is 35 per cent, which kicks in for those earning above $8,500 (pounds 5,312) a year. Average wages are closer to $1,800, which is taxed at 12 per cent. VAT is at 20 per cent.

Those who lie on their tax returns, or fail to submit them, face penalties ranging from a fine which equals their tax debt, plus interest, or - for repeat offenders - a jail sentence of up to three years.

The Swat teams do not help. "They tend to come through the front door and put a revolver up the receptionist's left nostril, no matter what kind of business they are dealing with," said one Western analyst. "It's not very nice."