Putin attempts to boost business with tax collector attack

RUSSIAN President Vladimir Putin tried to boost business confidence yesterday, reassuring skittish investors during his state of the nation address that rules governing the privatisation of state property and tax collection would not be constantly shifting.

In the annual address, Mr Putin said tax inspectors do not have the right to "terrorise business" and he called on the government to lower the time limit for challenging the results of past privatisation deals from 10 years to three.

Some foreign investors have been unnerved by recent government moves to hand massive back-tax bills to Russian businesses particularly in the lucrative oil sector, attack a politically ambitious business tycoon and allegedly backtrack on democratic reforms, analysts said. However, Mr Putin emphasised yesterday that Russia needs foreign investment and the "rules of the game" must be clear to attract it.

Ways must be found to collect taxes that "ensure the rights of state and don't destroy the economy or drive business into a dead end", Mr Putin said.

He also said rules on defining strategic sectors where foreign investment would be restricted should be established.

Last month, he tried to reassure business leaders that a spate of back-tax investigations, apparently spurred by the politically charged probe against the Yukos oil company, would be brought under control.

Any reassurance was largely dispelled, however, when Anglo-Russian oil company TNK-BP was slapped with a $1 billion back-tax bill weeks later and antitrust authorities blocked a planned investment by Germany's Siemens AG.

Analysts said that while Mr Putin once again said all the right things yesterday, the question was whether he would implement them. That was reflected in the fact that Russia's benchmark RTS index remained flat following the president's speech.

"It's already been said," said Steven Dashevsky, head of research at Aton investment bank. "It's clear the Russian government wants to make life easier and more predictable for business. The question is whether all these reforms, all these improvements, get pushed down through the various levels of bureaucracy."

In an apparent response to foreign allegations that Russia has been backtracking on democracy, Putin said Russia's main political task was to develop as a free, democratic nation with European ideals. He stressed that individual freedoms would not be compromised by strengthening the state.

"We are a free nation and our place in the modern world will be defined only by how successful and strong we are," he said.

Critics have attacked Mr Putin for slapping restrictions on independent media, ending the direct election of governors, ensuring a compliant parliament and attacking a politically ambitious tycoon, ex-Yukos chief Mikhail Khodorkovsky, whose verdict in a fraud and tax evasion trial is expected today.

"The words of the president about stable and defined rules of the game for investors sounds like a mockery coming two days before," said Sergei Mitrokhin, deputy head of the liberal Yabloko party.