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29 Dec, 2009 15:51

Russia relaxes law for first-time tax evaders

Tax cheaters are breathing easier today as President Dmitry Medvedev ushers in sweeping changes to Russia’s criminal code, while introducing house arrests for some offenders

In an effort to better differentiate between non-violent white-collar crime and criminal offenses, first-time tax offenders will no longer be punished under Russia’s criminal code. The indulgence means that individuals suspected of committing tax offenses for the first time will not sit behind bars awaiting a lengthy investigation and trial.

Furthermore, the law exempts such individuals from punishment provided they pay to the authorities all relevant taxes and subsequent fines. This is a far cry from the past, in that the guilty party is able to reimburse the tax man and avoid a prison sentence.

Finally, the law increases the minimal amount of unpaid taxes that are subject to criminal investigations: for individuals, the amount will be increased six-fold, while for corporate entities the amount will go up four-fold.

So what has prompted this wave of leniency for individuals and legal entities that fail to give the state its due share? Is Russia going soft on white-collar criminals, with country-club prisons and ‘Russian Martha Stewarts’ next on the horizon? Or is Russia trying a different tact with tax evaders in the hope of coming out ahead of the game in the long-term?

After all, the new legislation, while making life less complicated for first-time tax evaders, will help free up the Russian prison system, while allowing the tax authorities to recover their losses on back taxes more rapidly. The new tax law will also help to separate the true “serial tax evaders” from those individuals and organizations that failed to pay their taxes out of ignorance of the tax system, for example.

Another explanation for the new legislation, which restricts police powers regarding tax crimes, stems from the tragic death of Sergei Magnitsky, a tax lawyer. Magnitsky died last month after pancreatitis he acquired while in prison went untreated.

Medvedev, who has vowed to fight corruption and bureaucratic mismanagement, on Tuesday fired Alexander Piskunov, deputy head of the Federal Penitentiary Service.

“I think the Magnitsky case, and others, might have helped to trigger this decision,” said Andrey Kortunov, President of the New Eurasia Foundation in Moscow and former foreign policy advisor to President Boris Yeltsin, told RT. “We need to make clear that people are not prosecuted just because they were ignorant, or because our legislation was not clear enough.”

Asked if the new legislation will help entice more foreign investment to Russia, Kortunov said investors will take a wait-and-see approach.

“I don’t think we can expect immediate results, because I guess many foreign companies… will take a wait-and-see approach,” he said. “A lot will depend on the practical implementation of this new legal act.”

In addition to amendments to the tax code, the Russian president signed into force legislation for the introduction of house arrests, a completely new form of punishment in the country, the Kremlin's press-service said.

“It’s a step in the right direction,” the President of the New Eurasia Foundation said. “It is something that brings Russia closer to the European countries, and to the United States.”

So the big question is, when it comes to paying taxes, are Russians inherently corrupt?

Kortunov says “No.”

“It’s not that Russians don’t want to pay taxes, but rather there are many gray areas in the tax code. I think we need more clarity on this issue.”

Kortunov then added that some foreigners have the impression that Russia wields taxes as a political tool.

“Unfortunately, Russia’s image in the West is not quite favorable,” Kortunov said, “and the perception is that the tax legislation is used by the Russian state in a very arbitrary way. It is sometimes used as a political tool. There are… very wealthy people who do not pay taxes and are prosecuted.”

But of course the very same thing could be said about any other government. And not everybody fails to pay their due to the tax man out of “evil intentions.”

“Sometimes people and organizations fail to pay taxes not because of any evil intentions, but simply because they were ill-informed about what they should pay, how they should pay, about tax exemptions, etc.”

Finally, will the new tax law – which raises dramatically the threshold on the amount of taxes the government will consider before beginning an investigation – encourage individuals to avoid paying taxes?

“Well, we usually overestimate the crime potential,” Kortunov argues. “I think people are ready to pay taxes, however they need clarity… and they want some fairness, too.”

“However, like in any other country, there is a part of the society that will do what it can not to pay taxes at all,” he told RT. “And of course these people have to be prosecuted, otherwise it’s not fair to the rest of us.”

Robert Bridge, RT

(Evgeny Sukhoi contributed to this article)