Rationalizing or Empowering Bureaucrats? Tax Administration Reform in Poland and Russia

Abstract

Polish efforts at administrative reform within the tax service have focused on rationalizing the function and duties of tax officials in a Weberian sense. In contrast, Russia's tax bureaucracies lean towards securing their own ‘power’ over society through their tax collection mechanisms. Polish reforms have sought to rationalize the tax bureaucracy by focusing on institutional design as well as by reducing the ability of bureaucrats to function with undue discretion. Meanwhile, in Russia, the implementation of reforms designed to make the tax administration more ‘rational’ in a Weberian sense often fails to shift the course of the state's goal to seek power for itself, especially at the expense of society at large. Comparison of the experiences of these two countries suggests that ‘empowering’ bureaucrats so that the state will be ‘strengthened’ vis-à-vis society may not provide for as successful an implementation of state policy in the long run as an approach based upon ‘rationalizing’ the state.

Notes

1. By way of comparison, 4 to 6 per cent has been the range typical for Canada, the United States and Australia: see International Monetary Fund (IMF), Russian Federation: Selected Issues and Statistical Appendix, IMF Country Report No. 02/75 (Washington, DC: International Monetary Fund, April 2002), p.61.

2. While evaluations of the size and scale of tax arrears is a better measure of tax collection as it incorporates what the state believes should be ideally collected, the most frequent method of reporting tax revenue statistics is to present the amount of revenue collected annually in terms of its percentage of GDP, even though the size of economies or tax rates may vary significantly across countries. In any case, in comparison to the average tax collection rates in terms of percentage of GDP for the OECD group of countries, Poland fared quite well with respect to its annual collection of indirect taxes from 1990 to 2002, rising higher than the OECD average with the introduction of VAT and then declining slightly over time to approach the OECD level. Specifically, Poland's annual collection of indirect taxes averaged 11.9 per cent of GDP while the OECD's averaged 11.4 per cent of GDP over the same period. From 1992 to 2003, Russia each year collected an average of 9.45 per cent of GDP in indirect taxes. With respect to collection rates for direct taxes, Poland has occupied a middle ground – not as high as the OECD states, but higher than those of Russia. Over the period 1990–2002, Poland's yearly collection of direct taxes averaged 10.3 per cent of GDP compared with an OECD average of 13.0 per cent. By contrast, Russia collected an annual average of 8.7 per cent of GDP in direct taxes from 1992 to 2003. Poland and OECD data from the OECD's Revenue Statistics (2004), available at < http://www.sourceoecd.org/>. All Russian data calculated by the author using data from the International Monetary Fund, Russian Federation: Recent Economic Developments (Washington, DC: IMF, Sept. 1999), p.67; IMF, IMF Economic Reviews: Russian Federation (Washington, DC: March 1995), p.91; IMF, Russian Federation: Selected Issues (Washington, DC: Nov. 2000), pp.79–82; IMF, Russian Federation: Statistical Appendix (Washington, DC: Feb. 2002), pp.24–8; IMF, Russian Federation: Statistical Appendix (Washington, DC: May 2003), pp.24–7; IMF, Russian Federation: Statistical Appendix (Washington, DC: Sept. 2004), pp.19–22.

3. Anton Oleinik, ‘Introduction: Putting Administrative Reform in a Broader Context of Power’, in this collection.

4. Michael Mann, The Sources of Social Power: Volume II: The Rise of Classes and Nation-States, 1760–1914 (Cambridge: Cambridge University Press, 1993), p.444.

5. Michael Mann, ‘The Autonomous Power of the State: Its Origins, Mechanisms and Results’, in John A. Hall (ed.), States in History (Oxford: Basil Blackwell, 1986), p.135.

6. Valeri Ledyaev, ‘Domination, Power and Authority in Russia: Basic Characteristics and Forms’, and Oxana Gaman-Golutvina, ‘The Changing Role of the State in the Context of Public Administration Reforms: Russian and Foreign Experience’, both in this collection.

7. Interview with Tax Office Head, Warsaw, 20 Nov. 2001.

8. Interview with Tax Chamber Director, Warsaw, 15 Nov. 2001.

9. Antoni Z. Kamiński, ‘Corruption under the Post-Communist Transformation: The Case of Poland’, Polish Sociological Review, No.2 (1997), pp.91–117 (p.110); and Klaus H. Goetz and Hellmut Wollmann, ‘Governmentalizing Central Executives in Post-Communist Europe: A Four-Country Comparison’, Journal of European Public Policy, Vol.8, No.6 (2001), pp.864–87 (pp.874–5).

10. Najwyz˙sza Izba Kontroli (NIK), ‘Informacja o wynikach kontroli działalności urzędów skarbowych’ (Information on the Results of the Audit of the Activity of the Tax Offices) (Warsaw, Oct. 1994), p.3.

11. Renata Wrobel, ‘Tłok za biurkiem’ (Pressed behind the Desk), Rzeczpospolita, 22 March 1999.

12. INDEM Foundation, ‘Russia Anti-Corruption Diagnostics: Sociological Analysis’, English edn (Moscow: INDEM Foundation, 2001), Part 4, pp.23–4.

13. Janusz Borkowski, Jednostka a administracja publiczna po reformie ustrojowej (Public Unit and Administration after the Structural Reform) (Warsaw: Instytut Spraw Publicznych, 2001), p.40.

14. NIK, ‘Informacja o wynikach kontroli działalności urzędów kontroli skarbowej w latach 1992–1993’ (Information on the Results of the Audit of the Activity of the Tax Audit Offices in 1992–1993), government report (Warsaw: Dec. 1994), p.4; and NIK, ‘Informacja o wynikach kontroli działalności urzędów kontroli skarbowej’ (Information on the Results of the Audit of the Activity of the Tax Audit Offices) (Warsaw: May 2000), p.3.

15. Rafał Zasuń, ‘Czystka, potem reforma’ (Purge, then Reform), Gazeta Wyborcza, 7 Dec. 2001, p.4.

16. Alexander Morozov, ‘Tax Administration in Russia: Institutional Framework, Performance and Efficiency’, manuscript in English, 1996, p.1; and interview with former head of the department of civil service and personnel, ministry of taxes and dues, Moscow, 8 Aug. 2003.

17. Interview with division head, department of international co-operation and information exchange, ministry of taxes and dues, 22 July 2003.

18. Interview with US Treasury official, Moscow, 3 June 2003.

19. Morozov, ‘Tax Administration in Russia’, p.4.

20. IMF, Russian Federation (2002), p.60.

21. World Bank News Release, ‘Outcomes of the Russia Tax Modernization Project Supported by the World Bank and International Monetary Fund’, 17 Nov. 2000; and World Bank, ‘Project Performance Assessment Report: Russia – Tax Administration Modernization Project (Loan 3853)’, 13 May 2003, Report No. 25915, p.6. As a comparison, in looking at data published by GosKomStat in the 2000, 2002 and 2004 editions of Finansy Rossii, the amount of tax arrears as a percentage of total tax income to the Consolidated Budget of the Russia Federation as a whole fell from 49.40 to 31.20 per cent from 1998 to 2000, a level of decline of approximately 37 per cent.

22. Interview with US Treasury official, Moscow, 3 June 2003.

23. World Bank, ‘Project Appraisal Document on a Proposed Loan in the Amount of US$100 Million to the Russian Federation for a Second Tax Administration Modernization Project’, Report No: 23565-RU (Washington, DC: World Bank, 19 Sept. 2002).

24. Interview with division head, department of international co-operation and information exchange, ministry of taxes and dues, 22 July 2003; Bureau of Economic Analysis, ‘Chapter 2: Tax Policy’, in Review of Economic Policy for 2002, manuscript (Moscow, 2003), p.5; and Vladimir Samoylenko, ‘Russia Update’, ITIC Bulletin (International Tax and Investment Centre), June/July 2004, pp.1–2, available at <http://www.iticnet.org/publications/ITIC%20Bulletin%202004%20June%20July.pdf>, accessed 2 Nov. 2007.

25. Interview with former head of a Moscow tax inspectorate, 5 Aug. 2003.

26. Michael Wines, ‘Streamlining Government, Putin Creates New Anti-Drug Force’, New York Times, 12 March 2003, p.A10.

27. ‘Putin Cuts 13 Ministries and Almost a Dozen State Agencies’, RFE/RL Newsline, Vol.8, No.46, Part I, 10 March 2004.

28. ‘Sociologist Examines Administrative Reforms’, RFE/RL Newsline, Vol.8, No.54, Part I, 22 March 2004.

29. ‘Government Reform Reportedly Will Slow Work of Government … As Analysts Continue to Mull Changes’, RFE/RL Newsline, Vol.8, No.53, Part I, 19 March 2004.

30. Caroline McGregor, ‘20% of Civil Servants Face Axe’, The Moscow Times, 2 April 2004; and ‘Putin Reshuffles the Presidential Administration … As Titles Change But Portfolios Appear to Remain the Same’, RFE/RL Newsline, Vol.8, No.57, Part I, 26 March 2004.

31. ‘Overhauling the Russian Government’, RIA Novosti, 1 April 2004, in Johnson's Russia List, No.8148, 1 April 2004; and McGregor, ‘20% of Civil Servants Face Axe’.

32. Nick Paton Walsh, ‘Putin Hikes his Pay to Fight Corruption’, The Guardian, 17 April 2004, in Johnson's Russia List, No.8171, 17 April 2004; ‘Civil Servants to Keep In-Kind Benefits Despite Government's Reform Effort’, RFE/RL Newsline, Vol.8, No.142, Part I, 28 July 2004; and Boris Nemtsov and Vladimir Pribylovsky, ‘The President, Simple and False: Ten Moments of the State's Lies; The Putin Regime is Based on Lies, Bureaucracy, and Corruption’, Novaya Gazeta, 10 Feb. 2005, in Johnson's Russia List, No.9058, 12 Feb. 2005.

33. Konstantin Frunkin, ‘Government Determined to Pursue Administrative Reform’, Izvestiya, 2 Nov. 2005, in Johnson's Russia List, No.9286, 3 Nov. 2005.

34. Samoylenko, ‘Russia Update’.

35. Ibid., p.1.

36. Ibid., p.2.

37. World Bank, FY05 Report on the Status of Projects in Execution (Washington, DC: World Bank, 2005), p.913.

38. Interview with former assistant to deputy head of Moscow city tax police, Moscow, 28 July 2003.

39. Ibid.

40. Alex Nicholson, ‘2 Tax Police Officers Caught Red-Handed’, The Moscow Times, 26 March 2003.

41. Samoylenko, ‘Russia Update’, p.2.

42. Interview with manager, Moscow office of one of the ‘big four’ international accounting firms, Moscow, 13 Aug. 2003.

43. Interview with former assistant to deputy head of Moscow city tax police, Moscow, 28 July 2003.

44. Daniel A. Witt, ‘Year-End Wrap-Up and Looking Ahead to 2005’, ITIC Bulletin, 5 Jan. 2005, p.2, available at <http://www.iticnet.org/publications/ITIC%20Bulletin%202005%20Janury%20Special%20Edition.pdf>, accessed 12 Nov. 2007.

45. Interview with former assistant to deputy head of Moscow city tax police, Moscow, 28 July 2003.

46. Interview with former deputy head of regional tax directorate, 18 Aug. 2003.

47. Lawyer, Moscow office of a leading international law firm, Moscow, 11 Aug. 2003.

48. Head law partner, Moscow office of one of the ‘big four’ international accounting firms, Moscow, 28 July 2003.

49. Ibid.

50. NIK, ‘Informacja o wynikach kontroli działalności urzędów skarbowych’ (Information on the Results of the Audit of the Activity of the Tax Offices), April 1993, p.34.

51. NIK, ‘Informacja o wynikach kontroli działalności Ministerstwa Finansów i urzędów skarbowych w zakresie poboru podatku od towarów i usług’ (Information on the Results of the Audit of the Activity of the Ministry of Finance and the Tax Offices in the Scope of the Collection of Taxes on Goods and Services) (Warsaw: Oct. 1997), p.28.

52. Ibid., p.27.

53. Interview with a tax chamber vice director, Gdańsk, 26 Nov. 2001.

54. Interview with tax chamber director, Warsaw, 15 Nov. 2001.

55. Interview with tax office head, Białystok, 7 Dec. 2001.

56. Interview with tax chamber department head, Białystok, 3 Dec. 2001.

57. ‘Tax Authorities Find “Yukos Effect” Beneficial’, Vremya novostei, 10 Oct. 2005, in Johnson's Russia List, No.9263, 10 Oct. 2005.

58. Interview with head law partner, Moscow office of one of the ‘big four’ international accounting firms, Moscow, 28 July 2003; and lawyer, Moscow office of a leading international law firm, Moscow, 11 Aug. 2003.

59. Interview with partner, Moscow office of one of the ‘big four’ international accounting firms, Moscow, 28 July 2003.

60. Interview with head law partner, Moscow office of one of the ‘big four’ international accounting firms, Moscow, 28 July 2003.

61. Interview with partner, Moscow office of one of the ‘big four’ international accounting firms, Moscow, 28 July 2003.

62. Jason Bush, ‘The Taxman Cometh – Again and Again’, Business Week, 7 March 2005, in Johnson's Russia List, No.9079, 6 March 2005.

63. Interview with partner, Moscow office of one of the ‘big four’ international accounting firms, Moscow, 28 July 2003.

64. Interview with Aleksei A. Mukhin, director of the Centre for Political Information, Moscow, 23 May 2003.

65. Interview with lawyer at Moscow office of international legal firm, Moscow, 7 Aug. 2003.

66. IMF, Russian Federation: Selected Issues and Statistical Appendix, IMF Country Report No.02/75, April 2002, p.63.

67. Interview with lawyer at Moscow office of international legal firm, Moscow, 7 Aug. 2003.

68. Guy Faulconbridge, ‘Kudrin Sets Out His Plans for Tax Service’, Moscow Times, 10 Feb. 2005, p. 2.

69. Ekaterina Grigorieva and Konstantin Frumkin, ‘Government in Instalments: President Putin delivers his budget address’, Izvestiya, 26 May 2005, in Johnson's Russia List, No.9160, 26 May 2005.

70. Yana Yurova, ‘Tax Reform in Russia: Business Is Happy, Unlike Ordinary People’, RIA Novosti, in Johnson's Russia List, No.9148, 13 May 2005.

71. RosBusinessConsulting, ‘Tax service reports on 2004 collections’, 25 Jan. 2005, in Johnson's Russia List, No.9034, 26 Jan. 2005; and Yekaterina Dranitsyna, ‘Tax Reforms Leave Business Unsatisfied’, St. Petersburg Times, 11 Nov. 2005, in Johnson's Russia List, No.9293, 13 Nov. 2005

72. Yurova, ‘Tax Reform in Russia’.

73. ‘No More Plans for Taxmen’, Vedomosti, 11 Aug. 2005, in Johnson's Russia List, No.9222, 11 Aug. 2005.

74. ‘06 Budget Sets Tax Collection Target’, Moscow Times, 24 Aug. 2005, p.6.

75. Interview with tax chamber department head, Gdańsk, 26 Nov. 2001.

76. NIK, ‘Informacja o wynikach kontroli wykonywania uprawnień przez resort finansów w zakresie wydawanych decyzji o zaniechaniu ustalania i poboru podatków’ (Information on the Results of the Audit of the Carrying out of Entitlements through the Finance Department in the Scope of Completed Decisions regarding the Nonfeasance of Arrangement and Collection of Taxes) (Warsaw, May 1995), p.57.

77. Ibid.

78. Interviews with vice-director, department of the state budget, NIK, 8 Nov. 2001; manager of a department, tax chamber, Warsaw, 15 Nov. 2001; tax office head, Warsaw, 20 Nov. 2001; and tax control office director, Białystok, 4 Dec. 2001.

79. NIK, ‘Informacja o wynikach kontroli działalności urzędów skarbowych’ (Information on the Results of the Audit of the Activity of Tax Offices) (Warsaw, April 1993), p.6; and NIK, ‘Informacja o wynikach kontroli działaności urzędów skarbowych w zakresie egzekucji i zabezpieczenia zaległości podatkowych’ (Information on the Results of the Audit of Activity of the Tax Offices in the Scope of the Collection and Obtainment of Tax Arrears) (Warsaw, April 2001), pp.9–10.

80. Interview with tax office head, Białystok, 4 Dec. 2001.

81. Liam Ebrill and Oleh Havrylyshyn, Tax Reform in the Baltics, Russia, and Other Countries of the Former Soviet Union (Washington, DC: IMF, 1999), p.13.

82. Interview with Aleksei A. Mukhin (n.64); and Matthew Valencia, ‘The Region's Tax Systems: Unclear and Severe’, Business Central Europe (Sept. 1994), p.69.

83. Interview with lawyer at Moscow office of international legal firm, Moscow, 7 Aug. 2003.

84. Interview with former assistant to deputy head of Moscow city tax police, Moscow, 28 July 2003; interview with former head of a Moscow tax inspectorate, 5 Aug. 2003; and interview with former head of the department of civil service and personnel, ministry of taxes and dues, Moscow, 8 Aug. 2003.

85. Interview with former head of a Moscow tax inspectorate, 5 Aug. 2003.

Additional information

Notes on contributors

Marc P. Berenson

Marc P. Berenson is Research Fellow at the Institute of Development Studies at the University of Sussex in Brighton, UK, and currently is a Max Weber Fellow at the European University Institute in Florence, Italy. He would like to express gratitude to the participants of the ReformNet workshop at the Memorial University of Newfoundland in August 2006 and, in particular, to Dr. Natalia Pohorila, who served as discussant, and to Dr. Anton Oleinik, who not only organized the endeavour but also provided additional substantive comments. Gratitude is also extended for the generous support for this project provided by the American Council of Learned Societies, the American Councils for International Education, the Institute for the Study of World Politics, the Social Science Research Council as well as the Centre of International Relations, the Council on Regional Studies and the Fellowship of Woodrow Wilson Scholars at Princeton University.