The Tax Man Cometh for Russian Companies

The stern voice of authority is speaking to Russia, ordering its businesses and citizens to forget five years of freewheeling economic chaos and start paying their taxes. If they ignore the voice’s warning, they face a punishment unknown in the days of Soviet severity--bankruptcy.

“Do you like it when your streets are clean? . . . Do you dislike it when crime surges? . . . If you want all the things you like to continue and the things you don’t like to be stopped--then pay your taxes,” the voice booms threateningly in a series of prime-time television commercials.

Officials are on the warpath against the vast industrial companies that, until now, have blithely ignored the tax man. There are pressing economic reasons for the sudden attack.

Tax revenues have collapsed catastrophically since President Boris N. Yeltsin’s government began reforming Russia’s Soviet-era command economy. The government blames shortfalls in revenue from major companies for its own failure to pay about $7 billion of back wages and for a vicious cycle of nonpayment and strikes crippling the Russian economy.

Now, spurred by the International Monetary Fund’s refusal to hand out the last two monthly installments of a $10-billion line of credit until tax collection is improved, a market-oriented law allows the government to force into bankruptcy those companies that are unable to meet their obligations.

The tax collectors are already trumpeting their success.

“The public pursuit in October and November of even a small number of bankruptcy cases which have been opened this year has brought a great leap forward in the willingness of many bosses to accept their obligations to pay their debts and their taxes,” said an upbeat Pyotr P. Mostovoi, Russia’s bankruptcy czar, who heads the Federal Bankruptcy Administration.

He said billions of rubles of late taxes were paid to the federal coffers during the fall. Tax revenues in November were 90% of projections, or equivalent to $3.8 billion, the State Tax Service announced. That rate of collection is 1.4 times higher than in October. The tax service estimates that December revenues will be between 92% and 95% of projections.

The IMF, pleased at the upturn in tax revenues, unfroze its loan on Dec. 14, promising to pay out the delayed $336-million installment due from October. But it kept Russia on tenterhooks about whether the payments will continue, with representative Thomas Wolf saying a decision will be reached on whether to pay similar sums due for November and December “in the next month and a half.”

In Western countries, bankruptcy is a market-regulating mechanism pursued by creditors or debtors independently of the state. But what it will mean for Russian companies, in a country where the state’s tentacles still stretch into almost every corner of private and public life, is still a gray area, being defined in terms of political convenience as much as economic need.

No one knows whether the firms facing bankruptcy are insolvent. Lack of clarity in their accounts makes it impossible to tell whether companies are deliberately misleading the government about their balance sheets.

For instance, Russia’s leading auto maker, AutoVaz, which makes Ladas and Zhigulis, produced more than half a million vehicles during the first 10 months of this year. But the firm owes the equivalent of $500 million in back taxes and almost four times that amount in debts to suppliers. Using what the business magazine Kommersant calls “surreal” accounting practices, AutoVaz barters 40% of its output with trading partners instead of selling it. The barter value is fixed at $9,000 a car, although the price on the street is only $8,000.

“It’s very hard to spot the signs of intent [to defraud]. Obviously, no boss is going to say, ‘Yes, I did this on purpose and I will give you a document saying so,’ ” said Alexander V. Borisov, public relations officer of the Russian Federation Tax Police.

The two best-known defaulters--auto makers Moskvich and AutoVaz--have so far wriggled out of the threatened punishment. Instead, the government has softened enough to announce rescue packages.

The government and AutoVaz struck a deal on Dec. 3: The government agreed to delay bankruptcy proceedings over back taxes for three months; the auto giant promised to double its share capital with an issue of new shares to a strategic investor or portfolio investors.

Skeptics who doubt the Russian government’s real commitment to full free-market reforms believe that the pay-taxes-or-go-bust campaign, like many Soviet-era self-improvement efforts, has begun with a bang but will peter out with a whimper as soon as the government persuades the IMF to come up with more money.

“They’ve declared the usual Russian political campaign, but in a month or two they’ll forget it,” said Boris G. Federov, former deputy prime minister and finance minister, adding that the IMF will probably accept Prime Minister Viktor S. Chernomyrdin’s assurances that this time Russia really was getting tough with reluctant industrial taxpayers.

“Chernomyrdin is persuasive, and the IMF has shown in the last three years that it gives money not for results in economic reform but for political reasons,” he added.

“All the enterprises which have gone on the blacklist always manage to work out a compromise. The company in trouble starts paying a little bit of tax, makes promises, and there’s always some gimmick, too, like AutoVaz’s share issue. But in fact, the problem isn’t solved.”