December 9 – December 15, 2013

Tax inspection as a prototype of state collection agency

The situation has not changed
Tax inspection as a prototype of state collection agency

In January – September 2013, the situation with settlements in Belarus’ economy deteriorated. Companies have resorted to unconventional methods to coerce debtors to pay for the supplied products, inter alia, using tax inspections as mediators. Against the background of unaffordable loans, companies might resort to non-monetary settlements and mass offsets.

As of October 1st, 2013 overdue payables in the Belarusian economy were $2.7 billion.

In 2013, the situation with settlements in the Belarusian economy deteriorated considerably. On October 1st, Belarusian enterprises’ payable accounts were circa $2.3 billion – a 23.6% increase since early 2013. Overdue payables grew at a faster pace, and increased by 62.8 %, reaching $2.5 bln. These statistics do not fully reflect the whole picture. For instance, payment due dates under agreements are prolonged and payments are delayed for up to 120 days, and sometimes, in order to unload warehouses, payments are put off for over a year. Some debts cannot be recovered due to debtors’ insolvency.

Problems with payments in the economy have pushed enterprises to using various mechanisms from the early 90s to squeeze money out of debtors. For example, they started recovering debts through tax inspections. It works as follows: when a company is due to pay taxes, it shows the tax authorities that it has no funds on its accounts. At the same time, the company provides the tax authority with a list of its debtors. The tax authority then charges the due amount of taxes and a bit more from the debtors’ current account. Finally, the tax authority pays back the excess tax to the company or offsets it.

This scheme is an efficient way to fight against chronic non-payment by some enterprises. State-owned enterprises receive production plans, which result in overstocked warehouses, current accounts’ deficit and, hence the need for new loans.

Barter transactions have also become widespread. If this trend continues, enterprises might start using promissory notes (bills of exchange), which were popular in the late 90s.

All these settlement types are archaic, but help to ease the problems with mass defaults in Belarus’ economy.

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