Russian FTS to check scrap suppliers, consumers

Russian Federal Tax Service (FTS) ordered to check the chain of scrap supplies, starting from scrap collectors from individuals to the scrap purchases by metallurgical enterprises, of seven metallurgical plants in Moscow and Sverdlov regions. The examination is to be done by May 25, 2006. The main reason for such interest of the FTS in scrap suppliers and consumers is the systematic refusal of both scrap collector and scrap consumer plants to use the privilege on VAT payment. Starting from January 1, 2006, scrap collectors were freed from payment of VAT on scrap sales. The new law, however, permitted scrap collectors to choose whether or not to use this privilege. Directly after the enforcement of the new law, almost all scrap collectors applied to the FTS to be exempted from the privilege on VAT payment, justifying their decision by the fact that all their partners are working with VAT. This fact became the matter of suspicion for the FTS representatives, who argue that the scrap collectors' desires to be exempted from the privilege on the VAT payment increases the risks of nonpayment of VAT on scrap sales, by using illegal means of tax withholding. The nonpayment of VAT on scrap is a big issue for the Russian government, which has been losing more than $450 million every year. The new law on VAT on scrap, which was put in place to solve this problem, in reality showed many weak points.