RUSSIAN TAX POLICY DRIVES AWAY INVESTORS

RUSSIAN TAX POLICY DRIVES AWAY INVESTORS

U.S., Japanese and other foreign investors are pulling out of the Russian Far East in the face of onerous taxes, rapidly shifting regulations and general economic chaos.

With its vast resources and ample land, the region had been a magnet for investors. But in a gloomy comment on the current investment picture, Natalya Pisarenko, deputy head of external affairs for the local government, said hundreds of foreign joint-venture partners who arrived in 1990 and 1991 have all but disappeared."Serious investors are not coming to Russia this year," she said at a meeting in a long, narrow office of the Khabarovsk municipal building. ''Unfortunately, the number of joint-ventures has declined."

Russian tax policy, set in Moscow, is largely to blame, many say. Different levies - including property, transfer, police, federal and income taxes - add up to between 75 percent and 88 percent of income for companies.

On top of those are export taxes.

What's more, in a country where "profit" was a dirty word for more than 70 years, there is still little understanding of how financial incentives work.

One Moscow analyst said he worked with a company that made a 100 percent profit on a transaction and was taxed at a 105 percent tax rate. The company's protests went unanswered, he said.

The way Russian officials see it, if a company makes a big profit, it should be able to pay more in taxes.

Victor Kozub, general director of a Russian-Japanese joint venture called Eurasia Trans Inc., said honest companies are bending under the tax burden. ''Paying taxes is one of the main problems," he said.

Mr. Kozub, whose company is involved in rail transport and tourism, said it is often difficult to see returns.

"We would appreciate it if the government reduced the number of taxes. Sometimes we don't know where it goes and what they spend it on," he said.

Official Khabarovsk statistics show 320 wholly foreign-owned companies or local-foreign joint ventures in the region, an area several times the size of Japan and with about 11 million people.

But many of the registered South Korean and U.S. companies have left, officials concede, and no one knows how many of the 320 are still actually operating.

"Unfortunately, not all Korean and American companies that open are very reliable about providing information," Ms. Pisarenko said.

The dire state of the Russian economy, high taxes and changing laws are the most commonly cited reasons for leaving, Russian officials say.

Then there's the backpedaling on promised incentives that attracted foreign partners in the first place. These incentives could be withdrawn overnight, some investors complained.

"What was in place three years ago is different now," Mr. Pisarenko said.

Masami Naruse, Russian director for Japanese trading giant Mitsui & Co., said his company is scaling back its Far East Russian ventures and pulling out of a fish-processing project after new export taxes were introduced.

"They forced all joint ventures to exchange half their foreign currency earnings in rubles last year, so at this moment no one wants to invest in Russia," Mr. Naruse said. "It's not profit making."

The local government admits currency appropriation did little to spur confidence, but said it has little control over central government decisions.

"Of course Japanese and foreign companies have every right to demand some kind of guarantee," Ms. Pisarenko said.

One group of foreign companies - from China - seems to be reasonably successful in the Russian Far East. However, their success often has come at the expense of their Russian counterparts.

Officials say, for example, that a recent Central Customs Committee ruling mandating minimum export prices for timber, fish, steel, minerals and

machinery was partly a result of hard-nosed Chinese bargaining that kept those prices unreasonably low.

"There's always a problem with China, which wants to buy everything cheap," Ms. Pisarenko said.

The new price law is difficult to enforce and many trading companies don't bother to register, other officials said.

Officials point to signs that a better business environment is not too far off. They cite the increasing use of foreign business terms like monetary policy, market incentives, necessary economic reforms, profit, marketing plans and private initiative.

But it's not always clear if the users understand these terms. It is not uncommon, for example, for local officials to talk about the need to decentralize the local economy and in the same breath complain about reduced subsidies from Moscow.

Still, the Russian Far East has received some authority from Moscow to offer tax holidays for local investments, negotiated when President Boris Yeltsin visited the region earlier this year.

Khabarovsk officials also mentioned the large number of new locally owned companies - mostly restaurants and small shops - that have sprung up since a

December 1990 law took effect. In 1992 alone, the region registered 6,000 new local companies, a three-fold increase over a year earlier.

"My personal opinion is we've passed the most critical period, " said Ms. Pisarenko. "More and more Russian people are opening businesses."