Hurting for Cash, Russia to Impose Duties on ‘Shuttle Traders’

Faced with shrinking tax revenue and a suspension of credit from the International Monetary Fund, Russia announced Tuesday that it will impose duties on consumer goods carried into the country by millions of small-time “shuttle traders.”

The new import tax, effective Aug. 1, is the first major step by President Boris N. Yeltsin’s government to control a budget deficit that grew to meet the spending promises of his reelection campaign. The measure will have broad social impact, threatening the livelihoods of as many as 20 million struggling, unlicensed merchants.

In Russia’s rough ride from communism to the free market, many of those thrown out of work or reduced to paupers’ wages have coped by becoming permanent globe-trotters--traveling to such places as China, Turkey and Poland, filling their luggage with merchandise and carrying it home duty-free to sell on the streets.

Officials estimate that shuttle traders earn more than $10 billion in untaxed revenue per year, mostly from the sale of cheap imported clothing, while Russia’s overall tax revenue since January has been only 59% of what was budgeted.

Citing poor tax collection and a budget deficit $3.4 billion wider than promised, IMF officials last week halted their $330-million monthly credits to Russia and gave the Yeltsin government until mid-August to straighten out its finances.

The IMF monthly payments are part of a $10.2-billion credit, second-largest in the lending institution’s history. The loan was negotiated in February to help Russia’s economic transition and Yeltsin’s chances of defeating a Communist rival in the presidential election.

Russia has received four monthly payments under the loan agreement, which requires Moscow to meet targets of tight fiscal management. IMF officials monitor those goals in Russia monthly, rather than every three months, as is their usual practice elsewhere.

It was clear during the campaign, as Yeltsin issued uncounted billions of dollars in spending promises, that Russia’s fiscal performance was sliding off target. But the IMF waited until he was safely reelected July 3 to begin what a Western economic official here called “a major stock-taking” of the loan agreement.

The IMF confirmed the suspension Tuesday, saying in Washington that there will be a “delay” in Russia’s credit for July until an IMF mission completes its review here next month. The IMF “needs to see some results . . . that would be indicative of a major effort to increase revenue,” the Western official said.

As part of the review, Russian officials are seeking easier IMF targets for monthly inflation, gold reserve requirements and the size of the money supply. They are also drafting what Russian Central Bank Chairman Sergei Dubinin called “an emergency plan” to increase revenue.

“If we don’t solve the acute problem of federal tax collections, that will put in question not only future funds from the IMF but also the very existence of the Russian state,” Dubinin said Tuesday. “Our task is to turn our political victory into an economic victory.”

Part of the tax problem is that Russian corporations withheld payments to the Treasury throughout the first half of the year, waiting to see if the Communists would return to power. While counting on these corporations to pay up now, government officials say they are also planning to close loopholes that allow most of Russia’s vodka and automobile imports to escape duties.

But the broadest clampdown, officials say, will come against shuttle traders, who have become so organized that they often travel in chartered planes.

“Shuttle trading is a business, and the shuttle traders as business people must pay taxes into the budget, which they do not,” Valentin Polyakov, deputy chief of the Moscow customs directorate, told the Itar-Tass news agency.

He said he is working with tax authorities to build a databank full of information about each of Russia’s shuttle traders, the number of trips they take and the amount of goods they bring in on each trip.

Like anyone traveling into Russia, traders must pay duty on all merchandise valued in excess of $2,000. But this duty is rarely enforced, and shuttle traders routinely bribe customs inspectors.

The duty announced Tuesday will be levied on goods in excess of $1,000 in value or 110 pounds in weight and will be accompanied by what officials call a crackdown on corruption in the customs service.

Fearful of losing their post-Soviet freedoms to travel and trade, shuttle traders voted overwhelmingly for Yeltsin. They are bound to feel disillusioned by the new tax, which, if collected, could jeopardize their well-being. Without a broader crackdown on corruption and organized crime, these merchants say, it will be impossible for most of them to pay off the bribe-takers and racketeers who are allowed to prey on legitimate business.