In recent years there has been a constant discussion of the need to reform value added tax and this discussion has become increasingly relevant with the development of a long-term strategy for socio-economic development. Whereas some have proposed that the rate of VAT should be reduced, more radical "reformers" are examining the implications of replacing VAT with a sales tax or of using the Addition Method for the calculation of VAT. 2 Critics of the present system argue that particular defects

more »

... of the tax and the complexity of its administration render it inefficient not only in Russia but also in other countries. Above all, there are problems relating to VAT refunds and offsets against tax, which in some cases deter Russian companies from competing in export markets. There are also problems arising from the use of various illegal schemes for minimizing payment, avoiding tax and even obtaining direct illegal refunds from the budget. The critics of the present system point to other defects. The relatively high cost of the administration of VAT is borne mainly by the taxpayer (according to a survey conducted in OECD countries the distribution of costs between tax authorities and taxpayers is 1:5) 3 . Moreover, the widespread use of schemes for avoidance of tax on imports creates unfair conditions of competition for tax-compliant importers and provides the entire sector with an incentive to join the "shadow economy".