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Vladimir Putin: This is the first meeting in such a representative format, a joint meeting of two leading tax agencies. It should contribute to closer coordination of your efforts. For all the independence of the two services, they have the common goal of effective and competent administration of the Government’s tax policy.

First, I would like to recognize your work during the past year. The federal budget received 1.8 times more tax revenues than in 1999. Some of the credit for this must go to you, and I would like to thank you. But, as I hope you know better than I do, it is also a result of overall economic growth. So let me make it clear from the start that your performance will be assessed not only on the basis of Finance Ministry targets, but will be compared with the actual increase of the gross domestic product. This applies to the current year as well.

There is one other area that we cannot be happy with. In spite of the measures taken, federal tax arrears are still high. They have increased by almost 20% during the past year. That figure is a serious wake-up call. The financial and credit sphere, trade, the fuel and energy complex and the production of alcoholic beverages still have huge untapped potential.

The shadow economy controls much of the gross domestic product, and more than a third of all taxes are paid by a score of the biggest national companies. The discrepancy is glaring. Misappropriation of public funds and embezzlement are real threats to the economy. The state loses huge amounts of money as a result of various financial violations.

Let us look at the collaboration between your services and its results. From my figures, in 2000 the tax service sent to the police about 15,700 cases. Of these 13,100 cases have been considered and charges have been brought in 20% of them. But only 310 have actually reached court and only 133 court rulings were delivered.

The Federal Tax Police Service opened, I think, 32,160 cases, but what has been the output? Perhaps the head of the agency will tell us about it, but documents do not tell us how many rulings have been delivered in favour of the police, that is, in favour of the state. The facts show that there are still many problems.

Our primary task is to create an effective system of governmental financial control, and to make it workable. To do that one should understand and frankly discuss the fundamental issues of tax policy, its principles and outlook. The state’s tax policy is a key instrument of economic development strategy and your agencies are chiefly responsible for its implementation.

Many interests converge in this sphere. They are controversial and sometimes mutually exclusive interests. So we should have a clear idea of, and find a careful balance between, public and private interests, respect the rights of citizens and businesses and honour the law while acting within our writ. And we should keep in mind the basic questions: how to raise funds to meet social obligations and at the same time promote the economy and entrepreneurship.

Of course, it is difficult to work in these conditions. Especially if one recalls that the tax system had to be built up from scratch in the early 1990s — it existed in theory, but not in practice. That compounded the situation and the multitude of internal contradictions. For example, for years the task of the tax agencies was to squeeze as much out of the economy as possible, and shortfalls in tax collection were made up for by introducing new taxes.

Eventually we faced an overall crisis of the tax system. People had come to see taxes as the greatest of all evils. We had to change our approach and the principles of the tax system and establish simple, clear and stable terms of taxation. We are already doing it. Important laws have been passed and have come into force as of January 1. The 2001 budget was adopted on their basis. But this is only the start of a large-scale and phased effort lasting several years.

The logic of our actions in the tax sphere should be as follows.

First, tax policy should be stable and predictable. Without it talk about economic strategy or long-term investments is futile.

Second, consistent and well-considered reduction of the tax burden. The sole principle behind this is that changes in taxation should not make things worse for the tax payer. That is why our first steps have been to introduce a flat income tax and a single social tax. And we must be able to say that we guarantee that the 13% tax rate is here to stay.

Russia’s taxes on individuals are among the lowest in the world. But that is not only a social, but, above all, an economic measure. We have met the business community halfway and now expect it to reciprocate and to be aware of its legal and civic responsibility, the responsibility to pay all taxes. Incidentally, Russian businesses have been making some reasonable proposals, including a final replacement of the turnover tax with the profit tax. Experts have to thoroughly study the idea without delay.

The third principle is streamlining the tax system and making it less bureaucratic. We need a package of measures to reduce bureaucracy throughout the economy. Analysis shows that many problems that have failed to be solved for years stem from the existence of administrative barriers.

A careful look at tax instructions shows that they have many small and large discrepancies. Rather than clarifying things, they confuse people and give businessmen the jitters. They lay the ground for arbitrary tax decisions and often nullify the positive achievements of the tax system. You must prevent any unreasonable interference in the activities of companies, organisations and citizens. You must strictly follow the law and respect the tax payer.

Proceeding from the above principles we should determine the priorities of our work. First of all, you have to get rid of departmental mentality and improve the mechanisms for cooperation. You should coordinate better the activities of financial supervision and law enforcement agencies. That will enable honest businessmen to work calmly and spare them numerous and chaotic visits from biased inspectors.

I would like to dwell on the need to counter the shadow economy and financial crime. Unfortunately, criminal and illegitimate groups still easily evade taxation by resorting to various stratagems. One well-known example is fly-by-night firms specially created to dodge taxes.

I think the tax service needs an analytical unit or at least has to upgrade its analytical work as a whole. There are a huge number of tax dodging schemes. We know the truth of the statement that while hundreds and thousands of people create laws, millions of people think of ways to evade them. But these hundreds and thousands should at least have competent tax experts. So far, the analysts with the tax service have little to show for themselves.

Perhaps we should think about introducing amendments to current legislation: new businesses could be registered by the tax agencies which would simultaneously act as registration and fiscal agents. I know that the Justice Minister, who is present here, may not like it. But we should rise above departmental rivalries and act in terms of administrative and economic expediency.

We should seek to make our laws, especially tax laws, self-implementing, so that they do not need interpretation. We should abandon the practice of regulating tax relations by issuing departmental instructions. The picture today is very different. Even if a self-implementing law is passed, officials wait until they receive follow-up instructions, in fact they do not act until they get such instructions. It does not only hinder work, but results in the violation of the tax payer’s rights.

And now, my final remark. Your agency is not only a fiscal body. Today no one but you can competently enforce and explain the law. Methodological assistance to tax payers and considerate and patient work with citizens are also part of your job.

In conclusion I would like to stress that you are at the cutting edge of the relations between the authorities and society, the state and its citizens. Your competence and diligence do not only replenish the budget. People judge the government as a whole by the way your service operates. Moreover, the performance of your people has a direct impact on business activity, the investment climate and economic stability as a whole. I am not exaggerating, I recognize the importance of your work. And I wish you success from the bottom of my heart. Thank you.