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Russia Targets Its Biggest Firm in Attack on Tax Debtors

July 03, 1998|From Associated Press

MOSCOW — Russia's government on Thursday launched a new attack on tax cheats by starting at the very top--with Gazprom, the country's largest company, biggest tax debtor and perhaps its most sacred cash cow.

Lawmakers immediately objected to seizing the monopoly's assets, denouncing the move as an effort to destroy one of the country's remaining economic treasures. But the government scored a victory when Gazprom agreed to make regular tax payments.

Gazprom controls production and distribution of Russia's vast natural gas supplies and is one of Western Europe's largest suppliers.

"Splitting up Gazprom is tantamount to splitting up Russia," sputtered Communist Party leader Gennady A. Zyuganov, head of parliament's largest faction.

Prime Minister Sergei V. Kiriyenko threatened to seize assets and reassert control over Gazprom's board unless the natural gas monopoly starts paying the $750 million it owes in taxes each month. The company also owes $400 million in back taxes.

Gazprom agreed late Thursday to make the payments. Its director also pledged to return significant control of the company to the state, a move that would probably lead to better tax compliance and more effective government oversight.

But Communist opposition forced the Kremlin to change its tune from warning that all companies, big and small, must meet their debts to pledging to protect the biggest of them. "As long as I am in my post, there will be no breakup of Gazprom or other natural monopolies," Kiriyenko said.

Kiriyenko is in charge of digging Russia out of its financial crisis, caused largely by the government's chronic inability to collect taxes. Tax debtors include the country's largest companies, as well as millions of workers. Last year, only 5 million of Russia's 147 million citizens filed income-tax declarations.

The government targeted Gazprom, which supplies 25% of Western Europe's gas, in an attempt to convince investors and the International Monetary Fund that it's serious about rapidly boosting tax collection and narrowing its budget deficit. Russia is seeking an IMF-led loan of as much as $15 billion to bolster reserves and convince investors it can cover its debts.

The government's insufficient tax collections have caused a cash crisis that forces millions of state workers to go without pay for months on end.

Such problems have eroded investors' faith in Russia's financial markets, and stocks have plummeted, collapsing to half their previous value.

The ruble has also suffered. The central bank has intervened extensively to prevent a devaluation, which would raise consumer prices and could lead to social unrest.

A recent bond offering boosted reserves to $16 billion, up from $14.7 billion the week before, the bank announced Thursday. But that is still less than the estimated $21 billion in ruble-denominated bonds the central bank must cover.

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