$32Bln in Tax Debt All But Written Off

Every year, the Russian budget does not receive about 1 trillion rubles ($32.4 billion) in revenue from late taxes and fines, a sum that is not even included in budget projections.

At the start of April, the shortfall in taxes and fines collected by the tax service for the federal budget was 1.2 trillion rubles, according to a government report on fulfillment of the budget in the first quarter, which was submitted to the State Duma last week.

Nearly the entire sum — 1.1 trillion rubles — is owed to the federal budget. The figure is 14 percent of the treasury's planned revenue for this year (7.8 trillion rubles, including amendments to the budget) and more than one-third of the Federal Tax Service's planned collections (2.7 trillion rubles).

But an official in the Federal Treasury said the number was nothing out of the ordinary. "It forms because companies don't have enough working capital at the start of the year and they delay some tax payments," the official said, adding that by the end of the year, the figure usually drops.

The sum of unpaid taxes has remained little changed in recent years, regardless of the economic downturn and inflation. In 2003, it was 1.1 trillion rubles. In 2009, taxpayers owed the treasury the same amount, while in 2008 it was 967 billion rubles and 1 trillion rubles in 2007.

There was a surge to 1.5 trillion rubles in 2005 because of the Yukos case, an official in one of the state financial bodies said.

Slightly more than one-third of the current debt (467 billion rubles) is unpaid fines and tax sanctions, while the remaining 775.5 billion rubles is in late taxes and levies. Nearly half of that sum — 355.4 billion rubles — is unlikely to be collected because officials have stopped seeking the debt, the debtor's property has been arrested, or the taxpayer has entered bankruptcy.

The biggest debts are in value-added tax, at 357 billion rubles, and profits tax, with 175.2 billion rubles. In the first quarter, tax debt rose by 10 percent, and by May 1 it had risen another 3 percent to nearly 800 billion rubles.

Companies are not keeping up with their payments, though the weight of those debts in the overall total is not very high, said Alexandra Suslina, an analyst at the Economic Expert Group.

"The majority of it is a pure bookkeeping holdover, carried forward from year to year, which has been written off and isn't seen as a source of additional revenue," she said.

The figure includes hopeless debts dating back to the 1990s, which cannot be written off but are difficult to collect, a Finance Ministry official said. Only a small amount of the sum is repaid, while the rest is either written off in court or reclassified as deferred or restructured payments, said a source in one of the state bodies familiar with budget projections.

When budget revenues are being calculated, no part of the debt is considered, he said.

Nonetheless, part of the sum is paid to the budget under the heading "additional revenue from measures to increase payment discipline." In 2008, the Federal Tax Service planned to cut the debt through VAT by 329 billion rubles, and by 373 billion rubles last year.

But the line is not in the 2010 budget, since officials decided not to press debtors last year because of the economic crisis.

If the sum of the debt rose sharply in the crisis, one could hope that it was a temporary phenomenon, said Natalya Akindinova, director of the development center at the Higher School of Economics. But when the figure is almost unchanged over many years, there have to be institutional reasons, she said.

"The tax system is formed in a way that allows an enormous debt to exist in the economy with no way of solving that problem," she said.

The Federal Tax Service's press office could not be reached for comment Monday.