ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 2003 3 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ Tax Collcton, Transfrs, and Corrupton: th Russan Fdraton at th Crossroads 1) M. Mokhtar, I. Grafova Abstract Aftr thortcally consdrng th problms of tax collcton and corrupton, w mprcally analyzd our thortcal fndngs usng a unqu data st on Russan rgonal govrnmnts. Our thortcal modls prdct that th Russan systm of transfrs dos not nsur an adquat lvl of ncntvs for tax collcton by ts subnatonals and that, undr crtan condton, th numbrs of tax nspcton mploys ar nvrsly rlatd to th tax collcton. Emprcal vdnc strongly buttrsss our thortcal fndngs and shds sgnfcant lght on on of th most contntous ssu (ntrgovrnmntal fscal rlatonshp) n th Russan Fdraton. Introducton Sharng rsourcs btwn th fdral govrnmnt and th subnatonal govrnmnts s on of th most contntous problm n th Russan transton towards dcntralzaton, complacncy about th xstng lvl of corrupton among govrnmnt mploys has hlpd to put Russan corrupton ndx clos to thos of Cot d'ivor, Honduras, Inda, Tanzana, and Zmbabw. Unorthodox ncntvs and a wb of nffcnt nsttutons ar kpng Russa from th ralzaton of ts tru conomc potntal. Inapproprat fscal ncntvs, ngotabl fscal fdralsm, and corrupton hav ld to prvrs rsults for th Russan Fdraton (RF). Inffcnt 1) Ths papr was prpard undr th rsarch program Transformng Govrnmnt n Economs n Transton (GET) sponsord by th Ford Foundaton. Ths papr would not hav bn possbl wthout th support of numrous GSU/USAID Russan Fdraton Fscal Rform Projct staff. W also thank Slcuk Canr, Paul Grgory, Olh Havrylyshyn, Marshall Goldman, Barry Icks, Vladslav Kontorovch, Lond Polshchuk, Jant Wagnr, Olga Vorontsova, and Ekatrna Zhuravskaya for usful commnts and suggstons. W also wsh to xprss our grattud for usful commnts rcvd durng smnars at th IMF, Washng ton, DC, and th Nw Economc School, Moscow Russa. Rmanng rrors ar our own. Ì. Mokhtar Unvrsty of Maryland Collg Park and Nw Economc School, Moscow, Russa. I. Grafova Unvrsty of Pttsburgh and Unvrsty of Mchgan. Ñòàòüÿ ïîñòóïèëà â Ðåäàêöèþ â èþëå 2002 ã.
4 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 rvnu sharng arrangmnts, lack of wll-dfn tax rghts, and corrupton ar sgnfcant causs of Russa s poor conomc prformanc s, Andr Shlfr (1997), Danl Brkowtz and W L (1997), Ekatrna V. Zhuravskaya (1998), and Danl Trsman (1999a) 2). Jorg Martnz and Jamson Box (998) pont out that, Shlfr and Trsman (2000) conclud that, n th rform of stat fnanc, Russa s rformr hav nvr found a way forward (p. 184). Ths papr flls a sgnfcant vod by provdng thortcal and mprcal analyss of th ntrgovrnmntal rvnu assgnmnt systm and th corrupton problm n th Russan Fdraton. Our analyss dntfy th systm of transfrs and wdsprad corrupton among tax nspcton mploys as sgnfcant causs for nadquat tax collcton n th RF. W us a unqu data st that allows us to quantfy th nadquacy of th transfr systm and to captur th llusv ffct of corrupton on th RF tax collcton procss. In th RF, subnatonal govrnmnts play a mor mportant rol n tax collcton than thos of th Czch Rpublc and Poland. For 1997, tax collcton by th subnatonal govrnmnts n th Czch Rpublc and Poland wr only 5% and 3% of GDP, rspctvly, whl that of Russan subnatonal govrnmnts was 12% of GDP (s Tabl 1). Tabl 1 also shows that as a shar of GDP, Russa dos not collct as much n taxs as s collctd n th Czch Rpublc and Poland. Th Russan cntral govrnmnt collcts a low shar of GDP, whl subnatonal govrnmnts collct a rlatvly larg shar compard to transton succsss such as Poland and th Czch Rpublc. Th fact that subnatonal govrnmnts hav ncntvs to undr-collct natonal taxs s vdnt n Trsman (1999c). Svral strkng faturs of th Russan transtonal conomy com togthr n th mov towards collctng taxs. Frst, th transton towards a markt-basd conomy has cratd larg pockts of proftabl opportunts, whr n prvat sctor pay sgnfcantly xcds that of publc mploys. Ths may mply that th govrnmnt mplctly has accptd th wdsprad brbry of ts own mploys (Tmothy Bsly and John McLarn, 1993). Scond, a substantal ncras n walth nqualty has mad t vry proftabl for th rch to vad payng taxs by payng a small f. Thrd, low publc sctor pay, coupld wth chronc govrnmnt wag arrars, has lft publc mploys n a dr stuaton, dsposd to us thr offcs and postons for prsonal gan (John D. Donahu, 1989, Shlfr and Robrt W. Vshny, 1993, and Shlfr and Vshny, 1994). Fourth, tax nspcton mploys ar allowd to ngotat th actual tax paymnts by taxpayrs that ow a substantal amount of taxs. Ffth, th transtonal natur of th conomy and th nstablty of th poltcal procss and govrnmntal jobs hav mad tax nspcton mploys bhav as nonstatonary (Mancur Olson, 1995). Accordngly, n th countrs n transton a frtl ground for corrupton and prdatory bhavor s cratd. Ths lads to a srs of challngng problms for govrnmnt ntrvntons (Daron Acmoglu and Thrry Vrdr, 2000). In ths papr, our thortcal modls and mprcal analyss shd lghts on som of ths problms. 2) Shlfr dscusss th fact that th laggrd rform n Rassa s du to napproprat fscal ncntvs, lack of wll dfn ruls, ngotabl fscal fdralsm, and corrupton. Zhuravskaya shows that rvnu sharng schms btwn rgonal and local govrnmnts ar an mpdmnt to both ncrasng th tax bas and th growth of nw busnsss. Brkowtz and L show that lack of wll-dfnd tax rghts n Russa s th sgnfcant caus of Russa s poor conomc prformanc. Trsman provds vdnc that shows prcpton of corrupton s ndmc to fdral stats.
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 5 For undrstandng th tax collcton procss n th RF ntrgovrnmntal fscal rlatonshp systm w must xplctly ncorporat th transfrs rul n th subnatonal govrnmnts optmzaton problm and allow for brbs n th tax nspctors proft functon. Ths framwork lts us dmonstrat that fdral transfrs could, postvly or ngatvly, nflunc th subnatonal govrnmnts tax collcton fforts. But, n thr cas, ths nvarably lads to a ngatv mpact on th actual tax collctd by th subnatonal govrnmnts. Addtonally, our thortcal analyss shows that ncrasng th numbr of tax nspcton mploys may n fact lad to a dcras n th tax rvnu collctd by th govrnmnt. For quantfyng th tax fforts and th corrupton problm a data st whch s capabl of rprsntng rgonal tax collcton fforts and capturng th corrupton ffct s rqurd. Hnc, w us a unqu rgonal data st, ncludng prvously unpublshd rgonal data on tax arrars and tax dfrrals, whch lt us to approxmat mportant thortcal and mprcal varabls. Our thortcal modl and our rgonal data st provd a unqu opportunty to shd lght on many thorny ssus n th RF tax systm. In Scton I, w dvlop a thory of th tax collcton ncntv mchansm that shds lght on th tax collcton problm n th Russan ntrgovrnmntal fscal rlatonshp systm. Our modl show that th transfrs rul s th root caus of undr-provson of tax collcton ncntvs among th subnatonal govrnmnts to collct (fdral and local) taxs. In Scton II, w prsnt a modl that capturs th motvaton for accptng brbs by corrupt tax nspctors. Ths modl ylds a ngatv rlatonshp btwn th numbr of pr capta tax nspctors and th pr capta tax collcton. In Scton III, w us our rgonal data st of th RF to prsnt an mprcal analyss of th undrlyng ssus. Emprcal vdnc strongly supports our thortcal fndngs and shds lghts on th prsnt tax collcton problms n th RF. Conclusons ar prsntd n Scton IV. I. A Modl of Tax Collcton Incntv Mchansm W consdr a country (Russan Fdraton) whch conssts of a larg numbr of ndpndnt subnatonal govrnmnts (=1,2, N ). Subnatonal govrnmnt collcts fdral and local taxs and can ncras local tax collcton by applyng a hghr lvl of ffort, from whch t drvs dsutlty 3). Fdral taxs (FR ) ar usd to provd pur publc good G and to mak transfrs TR to subnatonal govrnmnts. Local taxs form own rvnu (OR ) of th rgon. Hnc, th total rvnu of subnatonal govrnmnt RS conssts of own rvnus OR plus transfrs TR. W assum that a subnatonal govrnmnt can 3) Snc 1994, th rform of rvnu assgnmnt has ld to som nw faturs n th systm (also, s th appndx to ths papr). On th on hand, offcal rvnu (fdral/subnatonal) sharng rats for major taxs ar standardzd across rgons. On th othr hand, actual sharng rats btwn th fdral and subnatonal govrnmnts, n practc, hav always dffrd from th ons statd n th fdral budgt. Ths s partcularly tru for VAT, whch contnus to b shard on a drvaton bass. Spcal trats wth som rgons also brak th standard sharng rats. Hnc, soft-budgt constrants of th past systm ar bng xtndd to th prsnt transtonal nvronmnts amongst th cntral govrnmnt and th subnatonal govrnmnts.
6 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 spnd no mor than th amount of local tax rvnu plus transfrs 4). Thus, w postulat that th utlty of a subnatonal govrnmnt dpnds postvly on ts pr capta rvnu RS /N and publc goods G, whch ar provdd by th cntral govrnmnt, and ngatvly on th lvl of ffort that t xrts for tax collcton,.., u = u RS / N, G, ). and ( Accordngly, w summarz ths gnral framwork as follows: (1) RS = OR + TR, RS OR + TR (2) =, N N N N (3) TR + G = FR, 1 1 u( RS / N, G, (4) u = ), (5) OR = OR ( ), FR = FR ( ) whr, (5) shows that tax collcton dpnds on ffort. Expndtur rsponsblts, whch ar dvdd btwn th cntral govrnmnt and subnatonal govrnmnts, hav dffrnt prorts. Som of ths rsponsblts, such as salars of tachrs, ar of th frst prorty and form th mnmum xpndtur budgt M. Such a masur M s usually ngotatd wth th cntral govrnmnt and may rflct th sz of th populaton n th rgon as wll. Transfrs TR thr covr a porton of th gap btwn th mnmum xpndtur budgt and local tax rvnu (M OR ) or tak a porton of th budgt surplus to th cntral govrnmnt budgt 5), (6) TR = α M OR ]. [ Bcaus ndvdual rgons cannot sgnfcantly nflunc th sz of th fdral govrnmnt budgt (3) and th amount of publc good G, th utlty functon of a subnatonal govrnmnt wll only dpnd on ts pr capta rvnu and tax collcton ffort. Ths allows for dpctng th subnatonal govrnmnt problms as follows: RS ( ) max u(, ) N (7) s. t. OR = OR ( ); [0,1] RS = (1 α ) OR + αm 4) By arly 1998, Lv Frnkman (1998) stmats th total accumulatd amount of subnatonal dbt to b about sx prcnt of GDP. 5) To mprov th ffcncy of transfrs, a formula-drvn systm has bn ntroducd and s n us. Howvr, not all knds of transfrs ar drvn by formula and th systm of ngotatons (soft-budgt constrants) ovr th sz of crtan transfrs has survvd. Ths procss contnus to hav a sgnfcant rol n th rallocaton of rsourcs from th top to th bottom.
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 7 Equaton (7) shows that utlty s an ncrasng functon of pr capta rvnu of a subnatonal govrnmnt and a dcrasng functon of tax collcton ffort. Howvr, th rlatonshp btwn tax rvnu and ffort s not lnar. Tax rvnu ncrass as ffort ncrass, but aftr ffort xcds som crtcal valu, tax rvnu dcrass as ffort ncrass,.., too much ffort rducs tax collcton. Hnc, own tax rvnu of subnatonal govrnmnt OR s concav and has a maxmum on th ntrval (0,1). W now consdr a sparabl utlty functon for th subnatonal govrnmnts,.., RS (8) u( RS / N, ) = h( ) g( ), N whr h > 0 and h 0 ; thus, th utlty of a subnatonal govrnmnt s a concav and monotoncally ncrasng functon of ts pr capta rvnu. W assum g > 0 and g 0, whch show that xrtng tax collcton ffort lads to dsutlty for th subnatonal govrnmnt. Othr dscrptons (constrants) of ths xampl ar as follows, (9) RS = (1 α) OR + αm ; OR' OR' < 0, ( OR' ' > 0, [0, < 0; * * );,1]; whch show, among othr thngs, that own rvnu s a concav functon of tax collcton fforts wth th maxmum bng btwn zro and on. Maxmzng (8) wth rspct to th constrants n (9) lads to: du RS RS '( ) (10) u& = = h' ( ) g '( ); d N N whr &u < 0 on [ * *, 1 ] and &u 0 on [ 0, ). Thus, optmal ffort s opt * [ 0, ). To arrv at an ntrnal soluton, optmal ffort should not qual zro. Thus, th optmal ffort dcrass as α ncrass. Thrfor, th lack of ncntv to collct taxs can b asly sn from: (11) du& = ( h' RS ' / N g' ( ))' d + ( h' RS ' / N g' ( ))' α dα = 0 that, h"(1 α ) h' ( ( M ) ) ' 2 OR OR (12) d N N =. 2 2 dα h''((1 α ) OR' ) / N + (1 α ) h' OR "/ N g''( ) Ths can b usd to stablsh a ngatv rlatonshp btwn th shar of cntral govrnmnt transfrs and th amount of subnatonal tax collcton. For th majorty of rgons, whch ar rcpnts, mnmum rsponsblts (xpndturs) xcd thr own ncom ( M OR ) > 0.
8 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 Thn, d <0, [ 0, *) and d > 0, ( *,1]. If optmal tax ffort s on th dα dα ncrasng ntrval of th own rvnu curv, thn ach ncras n th shar of cntral govrnmnt transfrs wll lad to a dcras n tax collcton ffort by th subnatonal govrnmnt. A dcras n tax ffort, n turn, wll lad to a dcras n tax collcton. If optmal tax ffort s on th dcrasng ntrval of th own rvnu curv, than ach ncras n th shar of cntral govrnmnt transfrs wll lad to an ncras n th tax collcton ffort of th subnatonal govrnmnt. An ncras n th tax collcton ffort, n turn, wll agan lad to a dcras n tax collcton. In our mprcal analyss, thrfor, w should obsrv that a hghr lvl of subnatonal tax collcton lads to a lowr lvl of cntral govrnmnt transfrs. II. A Modl of Corrupton Consdr an conomy whr th taxpayrs fac tax rat t whl rcvng taxabl ncom Y. In ths conomy, th tax payrs tnd to hd thr tru ncom Y, rport S (< Y) as thr tru ncom, and pay t(s) [< t(y)] to th govrnmnt. Tax nspctors ar supposd to dscovr Y and collct t(y) for th govrnmnt. In ths conomy, th tax nspctors maxmz thr own xpctd proft, whch consst of wags W from th govrnmnt and brbs b(y) from th taxpayrs [W + b(y) < t(y)],.., f thy dscovr Y. Th probablty of dscovrng Y by th tax nspctors s q, whch postvly dpnds on th numbr of pr capta tax nspctors, q = q(m). Smlarly, pr capta tax rvnu r postvly dpnds on th probablty of dscovrng th tru ncom, r = r(q). Morovr, th probablty that a tax nspctor xhbts non-corrupt (honst) bhavor s h. Convrsly, (1 h) s th probablty that ths tax nspctor bhavs n a corrupt (dshonst) mannr. Th tax nspctors can chang h at wll. Hghr valus of h lads to mor pr capta tax rvnu r for th govrnmnt, r = r(h). In th absnc of corrupton ncrasng th numbr of pr capta tax nspctors (m) may ncras pr capta tax rvnu (r); howvr, n th prsnc of corrupton ths rlatonshp could b ngatv,.., (dr/dm) < 0. Gvn th abov, th govrnmnt xpctd tax rvnu s q[ht(y) + (1 h)t(s)] + (1 q)t(s), f Y s not known wth crtanty and s [ht(y) + (1 h)t(s)], f Y s known wth crtanty. In th prsnc of corrupton, f th tax nspctor dscovrs Y, h lts th taxpayr pay t(s) to th govrnmnt and brb b(y) to th tax nspctor (hmslf), such that, t(s) + b(y) < t(y). Th govrnmnt handls ths typ of corrupton by changng th numbr of pr capta tax nspctors m and/or by changng th probablty of tax nspctors bng frd p. Ths mpls that, for a proactv govrnmnt such as ths, th xpctd pr capta tax rvnu r s gvn by (13) r = (1 p){q[ht(y) + (1 h)t(s)] + (1 q)t(s)} + pt(y). W assum that p ngatvly dpnds on r and that th tax nspctors know ths ( p/ r < 0). Gvn ths knowldg, to maxmz proft, tax nspctors chang thr bhavor by changng h.
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 9 Now, w wll show that th qulbrum lvl of h ngatvly dpnds on m,.., dh/dm < 0. Ths allows us to show that or dr/dm = ( r/ q)(dq/dm) + ( r/ h)(dh/dm) dr/dm = r' q (dq/dm) + r' h (dh/dm) taks a ngatv valu undr crtan crcumstancs. That s, w may obsrv that th hghr th numbr of pr capta tax nspctors th lowr th pr capta tax rvnu. Frst, w not that h and q drctly nflunc capta tax rvnu. Lttng ths s rprsntd by: x' z = x/ z and x" zz = 2 x/ z z, (14) r' h = (1 p)[t(y) t(s)]q >0, (15) r' q = (1 p)h[t(y) t(s)] >0, and that, (16) r" hh = 0, (17) r" hq = (1 p)[t(y) t(s)] >0. Scond, w not that, apart from th rsk of bng frd, th tax nspctor's xpctd brb s q(1 h)b(y). Takng hs wag W and th probablty of bng frd p nto account, th tax nspctor's xpctd ncom s [W + q(1 h)b(y)](1 p). Hnc, th tax nspctor's problm s: s.t and (18) max [W + q(1 h)b(y)](1 p) (19) p = p(h), (20) r = r(h, q). Ths maxmzaton problm ylds (21) p' r r' h [W + q(1 h)b(y)] (1 p)q b(y) = 0, as th frst ordr condton. Gvn p = p[r(h, q)] and r =r(h, q), th sgn for dh/dq may b obtand by takng th full dffrntal of th frst ordr condton (21), that s, (22) [ p" rr (r' h ) 2 A+p' r r' h q b(y)+q b(y) p' r r' h ]dh+ + [( p" rr r' h r' q A p' r r" hq A p' r r' h (1 h)b(y) (1 p)b(y)+p' r r' q qb(y)]dq=0, whr A = W + q (1 h)b(y). Solvng for dh/dq lads to: (23) dh/dq = {[p" rr r' h r' q +p' r r" hq ]A+[p' r r' h (1 h) (1 p)+p' r r' q q]b(y)}/ /[2p' r r' h q b(y) p" rr (r' h ) 2 A], whch s ngatv (dh/dq<0) f w not that th probablty of bng frd p s nvrsly rlatd to th pr capta tax rvnu, such that, p' r <0 and p" rr >0. W can rwrt dr/dm = r' q (dq/dm) + r' h (dh/dm) to obtan (24) dr/dm = r' q (dq/dm) + r' h (dh/dq)(dq/dm), whr r' h (dh/dq)(dq/dm) rflcts th corrupton ffct and as w just hav shown t s ngatv. On th othr hand, r' q (dq/dm) rflcts th non-corrupton ffct
10 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 whch s postv. Thrfor, whn r' h (dh/dq)(dq/dm) > r' q (dq/dm), an ncras n th numbr of pr capta tax nspctors wll lad to a dcras n pr capta tax rvnu dr/dm <0. III. Emprcal Evdnc A. Data dscrpton Th man sourcs of data ar Goskomstat (1998), th Cntral Bank of Russa (1997), and th Mnstry of Taxaton and Fs. Th Mnstry of Fnanc also provdd data not avalabl from th abov sourcs. Whl thr ar 89 rgons n th RF, lack of obsrvatons on som of th varabls lft us 72 rgons wth complt data. Tabl 2 prsnts dfntons, notatons, and dscrptv statstcs for our data. For 1997, Tabl 2 shows that avrag subnatonal rvnu (RS) for th 72 rgons ncludd n our data st was 3,655 mllon (old) rubls,.., avrag subnatonal govrnmnt rvnu was about 630 thousand dollars at an avrag xchang rat of 5.8 rubls pr dollar. Nnty prcnt [(3,149+157)/3,655] of ths rvnu was obtand by rtanng taxs collctd at th subnatonal lvl. Howvr, th rlatv valu of Fdral transfrs (TR) to th subnatonal govrnmnt rvnu (354/3,655) s 9.7 prcnt, whch s mor than twc th sam rato for th VAT collcton rtand n th rgon (157/3,655). Ths suggsts that fdral transfrs hav substantv mpact on th subnatonal rvnus. Subnatonal tax ffort (E) s masurd by th nvrs of tax arrars and tax dfrrals to th subnatonal govrnmnts,.. E = 1/(tax arrars+tax dfrrals+1). Ths rflcts th fact that rducton n tax arrars and tax dfrrals may rflct ncrasd vglanc n collctng taxs. Th subnatonal tax arrars ar not, howvr, unformly dstrbutd. Th top thrty subnatonal govrnmnts wth tax arrars n xcss of on prcnt ar owd svnty svn prcnt of all tax arrars n th Russan Fdraton. 6) Whl a host of nsttutonal, gographcal, and dmographc rasons may hav cratd arrars and thr unvn dstrbuton, govrnmnt tax nspcton mploys may hav had a substantv rol n ths as wll. B. Fdral Transfr to Rgons Th fdral govrnmnt, among othr thngs, dcds on th sz of transfrs by usng th tax capacty of rgons, whch also rflcts th mportanc of any rgon and th lvl of nflunc that th rgon may xrt on th fdral govrnmnt. Thus, th fdral govrnmnt dcrass transfrs to th rgons as th rgons tax capacty ncrass. Convrsly, an ncras n tax capacty allows rgonal authorts to bargan for furthr transfrs. For th prod of 1994 1998, th fdraton govrnmnt usd th actual tax collcton (OR) as th masur of tax capacty; thus, w us ths masur to modl th fdral govrnmnt transfr (TR) polcy. Addtonally, w nclud quadratc valus of OR to captur th ablty of larg rgons wth larg tax capacty to bargan for mor transfr. 6) Data shows that, apart from svn rgons, all of th othr subnatonal govrnmnts ar owd mony by thr taxpayrs. A data appndx s avalabl upon rqust from th authors.
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 11 Bcaus svnty-fv prcnt of all VAT collctd by subnatonal govrnmnts s passd to th fdral govrnmnt and th rgonal govrnmnts rtan th rst, w xpct th fdral govrnmnt to rward th rgonal govrnmnt for ts fforts n VAT collcton. W xpct to obsrv a favorabl transfr polcy whn mor VAT s collctd and, thus, mor VAT s rtand. Whl, th scsson tndncs n Russa wll vntually abat (Ptr Murrll, 1995), th ongong conflct btwn cntr and rgons allows for stratgc bhavor by th rgonal govrnmnts. Trsman (1996a, b, c) shows that rgonal govrnmnts causng th most troubl for th cntral govrnmnt,.g., sparatst movmnts, ar th ons to rcv th most transfrs (Brkowtz, 1996). Hnc, w xpct rgonal dstanc to Moscow (L) to postvly nflunc TR. Morovr, w us th numbr of crdt agncy branchs pr capta n ach rgon (NF) to rprsnt th lvl of fnancal sophstcaton and dvlopmnt n ach rgon. W summarz all ths n th followng functonal form: (25) TR = f (OR, OR 2, VAT, L, NF ), whr (=1,2,3 N) shows th th rgon and, a pror, w xpct: TR/ OR<0, TR/ L>0, and TR/ NF>0. C. Subnatonal Tax Collcton Tax Collcton Effort and Tax Capacty Dcrass n tax arrars and tax dfrrals ndcat hghr tax collcton fforts. At any gvn tm, n th majorty of rgons, thr ar stocks of tax arrars and a flow of tax dfrrals, whch may lad to arrars n th futur. W approxmat tax collcton ffort (E) by th nvrs of pr capta subnatonal tax arrars and tax dfrrals [E = 1/(tax arrars+tax dfrrals+1)]. Gvn that tax nspcton mploys xrcs consdrabl powr n allowng for tax dfrrals by taxpayrs and collctng tax arrars, w xpct a drct rlatonshp btwn E and subnatonal tax collcton (OR). Th RF govrnmnt uss tax capacty to dtrmn th sz of transfrs to th subnatonal govrnmnts. Dspt th fact that th RF usd actual tax collcton for ts transfr to th rgons durng 1994 1998, thr s no prfct mthod for stmatng th tru tax capacty. 7) To approxmat subnatonal tru tax capacty, w us a host of rlvant varabls: pr capta subnatonal tax dbt to th consoldatd 7) Tax capacty s usually stmatd by th actual tax collcton (whch was usd n Russa durng th 1994 1998 prod), avrag pr capta ncom n th rgon, or gross rgonal product (GRP). Actual tax collcton dos not captur tax capacty bcaus t mplctly contans nformaton on tax collcton ffort and othr factors. Actual tax collcton may b hghr n on rgon than n anothr rgon bcaus of dffrnt lvls of tax collcton fforts or bcaus of dffrnt tax vason tndncs. Avrag pr capta ncom, whch could b asly masurd, has ts own drawbacks as wll. As a masur of tax capacty, avrag pr capta ncom not only dos not tak nto account th shadow conomy but also gnors th fact that th rgonal authorts may tax conomc rsourcs whch do not blong to th popl lvng n thr rgon. Gross rgonal product (GRP), whch s a broadr masur of conomc actvts, may suffr from th sam shortcomngs. Nonthlss, a st of conomc ndcators may provd a bttr proxy for masurng tax capacty of ach rgon.
12 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 budgt (TD), prcntag of pnsonrs n th rgon (PEN), th numbr of small ntrprss pr capta (SP), and th rato of ngnrng (ncludng mltary) ntrprss to th total numbr of ndustral ntrprss n th rgon (MASH). Ths varabls captur th charactrstcs that may postvly or ngatvly nflunc tax capacty of rgons: Pr capta total tax dbt (TD) rflcts, among othr thngs, th tax capacty of a rgon hghr tax lablts mply potntal for hghr tax collcton. Transton to a markt systm has bn favorabl to th flourshng of small ntrprss; hnc, th numbr of small ntrprss pr capta (SP) has sharply ncrasd n rcnt yars. Thus, hghr valus of SP show bttr conomc condtons and bttr potntal for collctng taxs at th subnatonal lvl. In Russa, pnsonrs do not rcv larg ncoms and do not pay hgh taxs. Smlarly, th shar of popl undr th povrty ln (prozhtochny mnmum) pr rgon (PM) ndcats lowr capacty for taxaton. A hgh prcntag of pnsonrs (PEN) n any rgon mpls that th numbr of popl payng taxs s rlatvly small. Ovrall, hgh valus for PEN and/or PM n any rgon show th xstnc of a larg numbr of poor, thus, ndcatng a lowr tax capacty for th rgon. Shar of ngnrng (mashnostron) ndustry ntrprss rlatv to th total numbr of ntrprss (MASH), n ffct, rflcts how many mltary ndustral ntrprss ar n th rgon. Gvn that th mltary ndustral complx has bn ht hard from th downward shft n th dmand for thr products, w xpct to s an nvrs rlatonshp btwn MASH and th subnatonal tax collcton. Corrupton To captur th mpact of corrupton, w nclud th numbr of tax nspcton mploys pr capta (NR) as an xplanatory varabl n our rgrsson for subnatonal tax collcton. Thrfor, a pror, w xpct TR/ NR<0. Basd on our thortcal modl and th abov argumnts, our modl for subnatonal tax collcton (OR) s: (26) OR = g (E, NR, TD, PM, PEN, MASH ), whr (=1, 2, 3, N) shows th th rgon and, a pror, w xpct: OR/ E>0, TR/ NR<0, TR/ TD>0, TR/ SP<0, TR/ PM<0, TR/ PEN<0, and TR/ MASH<0. E. Rgrsson Analyss W approxmat th abov functonal forms by thr logarthmc quvalnts. Ths allows us to mtgat th potntal htroskdastcty n our subnatonal (cross scton) analyss, nforc th fact that our varabls tak postv valus, and rad th coffcnt stmats as lastcts. In our mprcal spcfcatons, howvr, w do not us log valus of L and E. Lnar valus of E allows us to gaug dffrnt lvls of ffort (dffrnt lastcts), whch ar xrtd by subnatonal authorts. To obtan consstnt stmats for our coffcnts, w frst, stmat our quaton for OR and, thn nclud ts prdctd valu and ts squard valus n th quaton for TR. Smlarly, n our OR and TR quatons, w rplacd VAT and TD wth thr rspctv nstrumntal varabls. 8) Fnally, for mprovng th ffcncy of our 8) In addton to all of th xplanatory varabls, nstrumnts ncludd total numbr of frms n th rgon, numbr of forgn frms n th rgon, and yarly varaton n tmpratur.
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 13 stmats, w appld th Smngly Unrlatd Rgrsson (SUR) tchnqu to our rgrsson modls to gt: and (27) lnor = 1.44 + 54.96 E 0.84 lnnr + 0.11 lnsp + 0.46 lntd 0.019 lnpm (1.11) (2.49) (3.71) (1.33) (2.29) (2.66) 0.11 lnmash 0.69 lnpen + Uˆ (1.68) (2.81) (28) lntr = 0.68 1.23 lnor + 0.77 lnor 2 + 0.96 lnvat + 0.004 lnnf + (0.30) (3.41) (3.51) (4.63) (0.02) + 0.00017 L + ϖ (4.62) R 2 systm =0.691, whr, Uˆ and ϖ ar stmatd rsduals and t-ratos ar rportd n th parnthss (.). It s worth notng that rplacng lnnr wth ts valus for 1996, 1995, or 1994 dd not chang rsults,.., w consstntly obtand smlar sgnfcant ngatv valus for th coffcnt of ths varabl. Apart from th ntrcpts, SP, MASH, and NF, coffcnt stmats of othr varabls ar statstcally sgnfcant. Rportd R 2 systm shows that, dspt th fact that w ar usng cross scton data, a larg proporton (.., 69%) of th varaton n th dpndnt varabls s xpland by th xplanatory varabls. Th rportd coffcnt stmat (and t-rato) support th hypothss that, an ncras n tax collcton ffort E has a postv mpact on pr capta tax collcton (OR). Effort-lastcty of OR (= 54.96E) attans a mnmum of 0.005 for Kmrovo Oblast and a maxmum of 1.68 for th Ingush Rpublc. Effort-lastcty of OR attans ts avrag valu of 0.1 for Pskov Oblast and th Rpublc of Dagstan. On avrag, for vry on-prcnt dcras n arrars and/or dfrrals,.., on prcnt ncras n fforts (E), pr capta tax collcton ncrass by on-tnth of on prcnt. Thus, solvng th problm of tax arrars and tax dfrrals at th subnatonal lvl wll hav a sgnfcant and substantv mpact on ntrgovrnmntal problms. Estmats also corroborat our obsrvaton that corrupton s a sgnfcant problm n tax collcton. Estmats show that an ncras n th numbr of tax nspctors pr capta (NR) has a ngatv ffct on pr capta tax collctons. In partcular, a on prcnt ncras n th numbr of tax nspcton mploys pr capta lads to a whoppng 0.84 prcnt dcln n subnatonal tax collctons. Tax nspcton mploys powr to ngag n ngotaton wth taxpayrs for grantng tax dfrrals and gnorng tax arrars ar dtrmntal to th tax collcton procss. Ths also rsmbls th prncpal-agnt problm, whr th agnt s not fully srvng th prncpal s objctv. Th lastcty stmat for total tax dbt, (0.46), ndcats that for vry onprcnt ncras n th pr capta tax lablty, only 0.46 prcnt s collctd. Ths s, n fact, consstnt wth th rportd low tax complanc rat n Russa and s ndcatv of a major ongong dfcncy n th procss of tax collcton. Sgns and szs of th stmatd lastcty coffcnts for th varabls approxmatng povrty (PM, 0.019, and PEN, 0.69), post-communsm conomc vgor (SP, 0.11), and dclnng dmand for larg ngnrng/mltary complxs (MASH, 0.11)
14 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 captur th hstorcal dynamcs of movng from a command systm to a markt systm. Incrass n th numbr of poor (PM) pnsonrs (PEN) and th roson of dmand for th larg ngnrng/mltary complxs hav had substantal ngatv mpacts on tax collctons. On th othr hand, th transton to a markt systm ladng to largr numbr of small ntrprss than bfor has provdd a largr tax bas and OR for subnatonal govrnmnts. Estmats for th TR quaton show that th coffcnt stmats of OR, VAT, NF, and L hav substantv mpact on TR. Th stmatd coffcnt for OR ( 1.23) shows that at th low lvl of tax collcton, any ncras n OR lads to a largr contracton of fdral transfrs (TR). For xampl, for subnatonal govrnmnts wth low tax collcton, vry on- prcnt ncras n th subnatonal tax rvnu lads to 1.23 prcnt dcras n fdral transfrs. Thus, hghr tax collcton ffort s not a worthwhl actvty for a subnatonal govrnmnt wth low tax collcton. But, whn OR ncrass byond 2.22 [= 1.23 / (2)(0.77)] nw rubls pr prson, TR ncrass as wll. Ths suggsts that aftr OR xcds 2.22 rubls pr prson, subnatonal authorts bargan for furthr transfrs. Th stmatd VAT-lastcty of TR attans a valu clos to unty (0.96). In practc, VAT procds ar dvdd btwn th fdral and th subnatonal govrnmnts on a 75/25 rul. Hnc, th fdral govrnmnt has a vstd ntrst not to rduc transfrs to th rgons that collct mor VAT. Th rgrsson rsults also show that dstanc from Moscow L and numbr of crdt agncs NF nflunc fdral transfrs to rgons. A postv coffcnt stmat for NF mpls that th numbr of fnancal nsttutons has a postv mpact on ntrgovrnmntal transfrs. Smlarly, dstanc from Moscow postvly nfluncs TR. Dstanc could ndcat hghr nds of rgons for transfrs or hghr cost of transfrs, such as n-knd transfrs. IV. Concluson Ths study provds thortcal and mprcal analyss of th ncntvs provdd by th Russan ntrgovrnmntal fscal rlatonshp systm, as wll as th wdsprad corrupton among Russan tax nspctors. On of th man rsults of our thortcal analyss s that th Russan systm of transfrs dos not nsur an adquat lvl of ncntvs for tax collcton by ts own subnatonal (rgonal and local) govrnmnts. Our thortcal analyss also shows that, whn potntal for brb-takng xsts, ncrasng th numbr of tax nspctors may lad to lowr tax rvnus for th govrnmnt. Emprcal vdnc buttrsss our thortcal fndngs and sgnfcantly llumnats rcnt vnts n th ntrgovrnmntal rlatonshp n th Russan Fdraton. Thr ar four major mprcal fndngs. Frst, ncrasng local tax collcton lads to th contracton of transfrs from th fdral govrnmnt. Scond, corrupton plays a sgnfcant rol n rducng tax collcton n Russa; w fnd that a hghr numbr of tax nspcton mploys lads to rducton n pr capta tax collcton. Thrd, a dcln n th dmand for larg mltary complxs and ncrasd povrty, whch rduc th tax bas for a rgon, hav dcrasd th ablty of rgons to collct taxs. Fnally, th transton to a markt systm, whr th sovrgnty of consumrs s rspctd, has ld to flourshng small ntrprss that may provd a largr tax bas for subnatonal taxs.
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 15 REFERENCES 1. Acmoglu D. and Vrdr T. Th Choc Btwn Markt Falur and Corrupton // Amrcan Economc Rvw. March 2000. 90(1). P. 194 211. 2. Brkowtz D. Rgonal Incom and Scsson: Cntr-Prphry Rlatons n Emrgng Markt Economs // Rgonal Scnc and Urban Economcs. 1997. 27(1). P. 17 45. 3. Brkowtz D. and L W. Dcntralzaton n Transton Economs: A Tragdy of th Commons? // Europan Economc Rvw. 1999. [Forthcomng]. 4. Bsly T. and McLarn J. Taxs and Brbry: Th Rol of Wag Incntvs // Economc Journal. January 1993. 103(416). P. 119 41. 5. Donahu J.D. Th Prvatzaton Dcson. Nw York: Basc Books, 1989. 6. Cntral Bank of Russa // Bulltn of Bank Statstcs. 1997. 12(55). 7. Crag J., Norrgaard J. and Tsbours G. Russan Fdraton // n T. Tr-Mnassan Fscal Fdralsm n Thory and Practc. Washngton, DC: Intrnatonal Montary Fund. Chaptr 28. 1997. P. 680 701. 8. Rgons of Russa. Moscow: Th Goskomstat of Russa, 1998. 9. Frnkman L. Russan Fdraton: Prmptng a Potntal Dbt Crss: Fscal Prformanc n Russa s Rgons. Washngton, DC: Th World Bank, 1998. 10. Lazarv V. and Grgory P. Dctators and Cars. Houston, TX: Unvrsty of Houston, 1999. [Manuscrpt]. 11. Olson M. Th Dvoluton of Powr n Post-Communst Socts // n Robrt Skdlsky (d.) Russa s Stormy Path to Rform. London: Th Socal Markt Foundaton, 1995. P. 9 42. 12. Martnz J. and Box J. Fscal Dcntralzaton n th Russan Fdraton: Trnds, Issus and Optons for Rform. Gorga Stat Unvrsty/USAID Fscal Rform Projct n th Russan Fdraton. Moscow, 1998. 13. Murrll P. On th Futur Cohson of th Russan Stat // n Robrt Skdlsky (d.) Russa s Stormy Path to Rform. London: Th Socal Markt Foundaton. 1995. P. 119 128. 14. Shlfr A. Govrnmnt n Transton // Europan Economc Rvw. 1997. 41. P. 385 410. 15. Shlfr A. and Trsman D. Wthout a Map: Poltcal Tactcs and Economc Rform n Russa. Cambrdg: MIT Prss, 2000. 16. Shlfr A. and Vshny R.W. Corrupton // Quartrly Journal of Economcs. August 1993. 108(3). P. 599 617. 17. Shlfr A. and Vshny R.W. Poltcans and Frms // Quartrly Journal of Economcs. Novmbr 1994. 109(4). P. 599 617. 18. Trsman D. Th Poltcs of Intrgovrnmntal Transfrs n Post-Sovt Russa // Brtsh Journal of Poltcal Scnc. 1996a. 26. P. 299 335. 19. Trsman D. Fscal Rdstrbuton n a Fragl Fdraton: Moscow and th Rgon n 1994 // Brtsh Journal of Poltcal Scnc. 1996b. 28, Part 1. P. 185 200. 20. Trsman D. Dcphrng Russa s Fdral Fnanc: Fscal Appasmnt on 1995 and 1996. Los Angls, CA: Unvrsty of Calforna, 1996c. [Manuscrpt]. 21. Trsman D. Dcntralzaton and Corrupton: Why Ar Fdral Stats Prcvd to b Mor Corrupt? Los Angls, CA: Unvrsty of Calforna, 1999a. [Manuscrpt]. 22. Trsman D. Th Causs of Corrupton: A Cross-Natonal Study. Los Angls, CA: Unvrsty of Calforna, 1999b. [Manuscrpt].
16 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 23. Trsman D. Tax Evason and Rgonal Fscal Protcton n Fdral Stats: A Modl wth Evdnc from Russa. Los Angls, CA: Unvrsty of Calforna, 1999c. [Manuscrpt]. 24. Zllnr A. An ffcnt Mthod of Estmatng Smngly Unrlatd Rgrssons and Tsts for Aggrgaton Bas // Journal of th Amrcan Statstcal Assocaton. 1962. 57. P. 348 368. 25. Zhuravskaya E.V. Incntvs to Provd Local Publc Goods: Fscal Fdralsm, Russan Styl // Publc Economcs. 2000. 76(3). P. 337 368. APPENDIX 1 Tax Collctons by Subnatonal (rgonal and local) Govrnmnts and Cntral Govrnmnt, % Tabl 1. Typ of Tax Rvnu Subnatonal Govrnmnt Rvnus as shar of GDP Cntral Govrnmnt Rvnus as shar of GDP Czch Czch Poland Russa Rpublc Rpublc Poland Russa 1996 1995 1997 1996 1995 1997 Total Tax Rvnu 5.1 3.2 12.3 35.9 36.8 16.1
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 17 Dscrptv Statstcs Tabl 2. Varabl Man (standard dvaton) Fnancal varabls RS Subnatonal govrnmnt rvnu (mllons of rubl) 3,655.70 (2,866.34) TR Transfrs from Fdral Budgt to subnatonal govrnmnts (mllons of rubl) 354.34 (269.51) VAT VAT collcton rtand n th rgon (mllons of rubl) 157.46 (145.43) LTC Tax collcton (xcludng VAT) rtand n th rgon (mllons of rubl) 3,149.85 (5,284.20) Dmographc varabls POP Sz of populaton n ach rgon 1,635,347 (1,231,597) DP Numbr of popl pr squar klomtr 31.95 (41.38) PEN Prcntag of pnsonrs n th rgon 19.49 (4.97) Structur of th rgon TP Numbr of ntrprss pr capta n th rgon 0.018 (0.0) SP Numbr of small ntrprss pr capta n th rgon 0.004 (0.002) NC Numbr of crdt agncs n th rgon 12.34 (11.53) NR Numbr of tax nspcton mploys pr capta 0.0013 (0.0003) NF Numbr of crdt agncs pr capta n th rgon 0.00003 (0.00001) Gographc varabls L Dstanc of subnatonal captal cty from Moscow (n klomtrs) 2,465.91 (2,837.11) S Ara of th rgon (n thousand squar klomtrs) 199.11 (419.76) Typ Gographcal catgorzaton (.g. Northrn, Cntral, Volga rgon, tc.) 6.27 (3.24) TZ Mnus lowst avrag monthly tmpratur 13.66 (8.74) DT Dffrnc btwn th hghst and lowst monthly avrag tmpratur 30.30 (8.10)
18 ÝÊÎÍÎÌÈ ÅÑÊÈÉ ÆÓÐÍÀË ÂØÝ ¹ 1 Rvnu Sourcs APPENDIX 2 Th dffcult transton towards a dcntralzd govrnmnt n Russa wll dtrmn th conomc ntgrty of th Russan Fdraton (RF) and th futur cours of ts conomc dvlopmnt. Th 1993 Consttuton, whl cratng a fdraton consstng of 89 htrognous subjcts, rmovd th Sovt command systm that had harnssd th cntrfugal forcs n Russa for th last half cntury. Smlar to th concpton of ts cntral command systm, Russa's mov towards a fdral systm has bn basd on tral and rror rathr than an accptd bluprnt (s Valry Lazarv and Paul R. Grgory, 1999, on cntral command systm and Shlfr and Trsman, 2000, on th conomc rform n Russa). Nonthlss, aftr almost a dcad of tumultuous transton, th flux n th RF has suffcntly sttld to allow for a formal conomc analyss of ts ntrgovrnmntal fscal rlatonshp. Th sourcs of rvnus for th subnatonal govrnmnt 9) n th RF, manly, ar shard rvnus and transfrs and own rvnu sourcs. Th shard rvnus and transfrs consst of a porton of fdral taxs and othr transfrs that th fdral govrnmnt channls to th rgons 10). Ths s th major sourc of rvnus for th subnatonal govrnmnts n th RF. Th lump sum natur of rvnu sharng (tax sharng), howvr, rducs th subnatonal authorts ncntvs to facltat tax collcton. Th own rvnu sourcs ar fdral taxs, whch ar on hundrd prcnt assgnd to th subnatonal, and rvnus from othr sourcs (ncludng ntroducng nw taxs) 11). Th mportanc of own rvnu sourcs and partcularly rgonal and local taxs hav bn ncrasng n th rcnt yars. In gnral, rgonal govrnmnts fnanc thr spndng through tax rvnus dvdd btwn th rgon and th Fdraton or btwn th localty and rgon or Fdraton. Hghr lvl grants to th lowr trs ar othr mthods of fnancng furthr spndng. Subnatonal govrnmnts ablty to ntroduc nw taxs, to chang tax rats, and to choos th tax bas ar lmtd. Among ths, rgonal govrnmnts hav lss lmtaton on choosng th rat to b lvd on a partcular tax. For xampl, whl th Fdraton ntroducs nw taxs, nw tax rats, and th shars to b dstrbutd to th rgonal govrnmnts, n som cass (.g., ntrprs proft tax rat) th oblast 9) Wthn th contxt of a thr-trd govrnmnt, howvr, th rlatonshp btwn th lowr trs (rgonal and local govrnmnts) ar basd on a lss formal structur than that of th fdral govrnmnt and th rgons. Local govrnmnt for th most part hav to ngotat thr rvnu assgnmnt wth that of rgonal govrnmnt. Howvr, a mov towards usng th fdral-rgonal rlatonshp as a modl for th rgonal-local rlatonshp s undrway (A.M. Lavrov, O.V. Kuzntsova, J.W. Davd, and E.E. Skatrshchkova, 1996) 10) Among a larg numbr of taxs n Russa fv ar consdrd to b th most mportant: valu-addd tax (VAT), corporat profts, prsonal ncom, xcs taxs and custom duts. Snc th arly yars of transton (1992 1993), VAT, ntrprss proft tax (EPT) and som xcss ar shard btwn fdral and subnatonal. Addtonally, mnor taxs ar 100 prcnt assgnd to th rgons. Prsntly, th fdral/rgonal sharng rats ar 75/25 for VAT, 37/63 for EPT, 50/50 for xcss on alcohol, and 100/0 for xcss on nrgy products. 11) Thr has bn an off and on approach to allowng rgonal to ntroduc thr own taxs. For xampl, a 1993 Prsdntal dcr On Formng Rpublcan Budgt and ts Rlatonshp to th Subjct of th Fdraton, allowd rgonal to ntroduc taxs whl a 1996 dcr rmovd such a prmsson.
2003 ÂÎÏÐÎÑÛ ÒÅÎÐÈÈ 19 govrnmnts choos tax rat to lvy (or surcharg) on a bas dfnd by th Fdraton 12). Smlarly, subnatonal govrnmnts, now may choos to lvy a rgonal sals tax 13). In othr cass (.g., prsonal ncom tax), rgonal govrnmnts ar rcpnts of a rathr larg shar of taxs but cannot chang th tax rat, tax bas or th collcton procdur. Howvr, mor than ghty fv prcnt of subnatonal own rvnus ar from proprty taxs, natural rsourc taxs, and housng mantnanc taxs. Th mportanc of own rvnu sourcs and rlatv shard rsourcs has ovr tm ncrasd and, prsntly, s as hgh as two-thrd of th shard rvnus. Prfctly matchng th rvnus and spndng of rgonal govrnmnts s vrtually mpossbl. Thus, transfrs ar ndd to fll th gap. Fscal dfcts of local trs ar closd by transfrrng tax powr to rgonal govrnmnts and transfrrng rsponsblts of spndng to cntral govrnmnt or by rducng rgonal spndng and srvc standards (Wallch, 1996). Evn though spndng may mt rvnus n aggrgat, th budgts of subnatonal govrnmnts may not balanc. Accordngly, th dtrmnatons of factors that nflunc own rvnu sourcs and transfrs ar of paramount mportanc. 12) For th ntrprs proft tax, th rat may vary from zro to 22 prcnt. Th advantag of surcharg ovr rvnu sharng s that t allows lowr trs to choos rats and allows avodng admnstratv confuson and duplcaton of fully ndpndnt taxs. 13) Oblasts choos th transactons that thy would lk to tax by th sals tax and may lvy a sals tax at any rat up to fv prcnt.