It’s not the first time we’ve had such a visit – so we went into “automatic mode” and asked – “where are your papers?”.  They fished out their ID-cards and so that part, at least, seemed OK … however, they didn’t have an order explaining what it was they were “investigating” or checking so it was case of “Come back when you’ve got one.”

The order should identify them and the issue being checked … then we know what information they need and we can provide it.  No problem – we’ll provide it, but if we are being asked to “follow the rules” and are going to face the possibility of penalties for “infringements” of the rules and regulations, then it only seems fair and logical to ask that the authorities do likewise.

Once the “check” is over they write a report, (called an Akt), and record their visit in the Inspections Book.  That “paper trail” Provides the proof that the visit took place … otherwise it’s just an “informal chat” …  and one of the problems with “informal chats” is there are no rules to govern them.

I am sometimes amazed that people think the ID-Card is enough … after all, it’s supposed to “identify” the person as working for this authority, or that. However, it’s not enough. Possession of an ID-card does not necessarily mean that they are the rightful owner – especially when they just flash it at you. Not everyone reads a card and I have to admit that, even of they let you read it, (because they are in Russian – or Kyrgyz), it can sometimes present me with problems.

On one particular occasion, a couple of “officials” approached me on the street and one of them flashed his ID at me.  I cursorily looked at it before he folded it up and put it back in his pocket – I looked OK, but I didn’t really make a note of the details, (name, official body, ID number and so on), During the ensuing conversation something “twigged” and started setting off “alarm bells” in my head.  I asked to see the card again and he refused … I said that as a public servant he had to present if and when asked and I wanted to write a note of the details … at that point he started “blabbering” something about being being trainees.  That was enough … I stopped and screamed at the top of voice, “Mitisia, Militsia, Mne noozhen Militsia!”  (Police, Police, I need the the police!).  That was enough for them … they turned and ran.

On another occasion, someone claiming to be an official turned up at the office and, before admitting him, I asked him for his ID card.  He gave it to me.  He actually handed it to me! Now, they are not supposed to do that … they are only supposed to hold it and let you read it … so, I told him that I didn’t believe him and to go away.  I turned around and went back into the office.  He did go away … and he never came back.

On a number of occasions, people have turned up claiming to be officials and when asked for the their ID card they shamefacedly reply that they … “don’t have it”.  It’s in the car, they left it at home or it’s in their “other suit”.  OK … no problem – come back when you’ve got it and then we’ll talk further.

These days, I am pleased to say – things are much better – more disciplined.  Visiting officials nearly always have their cards with them … and they are much more cooperative when showing it to us so that we can note the details and compare it with those on the official order.

As it happens, in this case, an informal chat seems to be exactly what they wanted.  It appears that a question had arisen back in their office about The Silk Road Lodge.  Someone had asked: “Who is the Silk Road Lodge?” and when they went looking they couldn’t find it registered … anywhere.  So, could it be that we were a “shadow” company – working in the “Grey Economy” without registration and paying our taxes … someone had decided to find out.   Hence the visit.

In a way, that struck me as quite funny.  It’s a five storey building in the center of Bishkek.  We have lots of corporate clients and government agencies who use our services It’s not really possible to hide the business.

When we said – “No wonder you couldn’t find us – there isn’t one,” a perplexed look appeared on the face of one of the visitors, and I think I detected a smile breaking out on the other and I could almost hear the anticipated “Aha! – I knew it.”

The smile soon disappeared, however, as we explained … “You looking for the wrong thing.   The Silk Road Lodge is not registered because it’s not a ‘legal entity’ – it’s a ‘department’ of The Celestial Mountains Tour Company – which is properly registered and does pay its taxes – in fact we are subjects of the Large Taxpayers Unit and have been ever since it was established.”

That’s basically all we were prepared to tell them without an official order.

Now, there’s nothing wrong with doing a check on registration and location – but it does need to be documented, or else there is no control.  Without following the proper procedures then anyone could just walk in and present themselves and who knows where that could lead?

The role of the tax inspector is to ensure that people pay the right amount of tax that is due … and on time.

Even if everyone accepts Benjamin Franklin’s dictum about the only two things that are certain in life being “Death and Taxes”, most people still don’t like paying taxes.  As a result tax collectors are not exactly the most popular people, so it seems intriguing that they are granted the recognition of such a professional holiday – especially when the accounts of corrupt inspectors taking bribes are considered.  On the other hand, it is also a mark of recognition of the important role that they play in servicing government and the functioning of society.

Taxes, after all, represent the way in which government’s raise the funds that they need in order to perform their functions and fulfill their role.

Even so, taxes represent a form of expenditure, but it’s not always obvious what the expenditure purchases.  As a result, many people don’t make the connection between their taxers and the services they receive: law enforcement; emergency medical services; fire services; social security; education and defense; roads and other forms of infrastructure … and so on.  Some people, of course, may wonder if the government is pending their money, (taxpayers’ money), wisely … but that’s another story.  What is noticeable is that many people try to minimize their exposure to tax.

To a businessman, for example, tax is just another form of expense, like the cost of raw materials, labour, or overheads for lighting, heating, etc.  A businessman tries to maximize profit by maximizing income and minimizing expenses … including their tax bill.  Provided they do this legally, I maintained, there should not be an issue.   One might want to close the “loopholes” which allow them to do so – but they should not be vilified for what was effectively “doing their job”.

I recent months a local think tank has published a new publication Tax for Teapots, which is how the series “… for Dummies” series is known here – that is “Tax for Dummies“.  There has even a publication produced by a USAID project advising businessman on how to reduce their tax liabilities.

On the other hand, there are people, who are called tax protesters, who withhold tax on the pretext that they have discovered some law or interpretation of the legislation that shows that they should not be taxed – so the tax is not due.  In America, for example, there are tax protesters who maintain that under the US constitution the Federal Government has no legal basis for levying and exacting a tax.  Although this seems an extreme position, sometimes, in certain circumstances a tax protester might well have a point – but only the courts will be able to decide the issue.    (That is why it is so important that the courts are independent and impartial).

Then there are people called tax resistors who refuse to pay some element of their taxes because they do agree with the way in which the government spends that money.  The classic case used to be members of the public who opposed nuclear weapons and withheld a portion of their taxes which, they said, would go towards the production and deployment of such munitions.  More recent example have involved protests against support for clinics which provide abortions, or stem cell research.  If, however, the relevant procedures have all be properly followed, then it is arguable if there is any legal justification for this … and the appropriate course of action should be to lobby for a change in the decision and/or work for a change in the government rather than failing to fulfill a legal requirement.

Now, A few weeks ago, in one of my weekly emails, (which gets sent out as an email to those on the distribution list), included a comment about a recent proposal to reward “whistleblowers” for passing information to the authorities about cafes, shops etc. who do not paying their taxes.  The suggestion was that they should receive 20% of any funds recovered for the state budget.

I said that this:

“may sound like a good idea, certainly a popular one, but I bet it won’t be as simple as all that … they’ll be all sorts of reasons why rewards won’t get paid.“

In fact, in a way, there already is a system involving such rewards in that the arrangements for the financing of the Schotnaya Palata, (the Accounts Chamber – the local version of the Audit Commission which examines the the use of public funds), includes a percentage of any monies that they recover.     Personally, I am a little uneasy about this.  Although I accept that this provides an element of incentive, it institutionalizes the reward system and means that the investigators are no longer independent and disinterested parties.

Anyway, I went on to comment that:

“There’s always a problem over definitions – especially when it comes to the distinction between tax evasion and tax avoidance.  One is reducing the amount of tax paid by legal means,whilst the other is using measures which are not.  Even in many Western countries these two are being confused, and where a person or corporation pays little or no tax because they are able to utilize “loopholes” they are treated like pariahs – even though, strictly speaking, they have done nothing wrong.  One might question the “morality” involved and praise the steps taken to “close” the loopholes, but it seems a bit unreasonable to complain when they abide by the rules – even if it is to make sure that it works to their own advantage.” 

As it happens, I am not alone in doubting the efficacy of the measure – some of the deputies have been voicing their doubts during a debate in the chamber – but for slightly different reasons: the risk of over burdening the law enforcement authorities with cases as members of the public make reports in search of rewards; and, curiously, that although investigations normally “goes well” but the recovery of funds is not as effective as might be hoped.   Anyway, my comments brought this response from one of my readers:

It’s my understanding that Tax evasion is illegal and tax avoidance is legal. It’s not clear in your postcard.

I am sorry if it wasn’t clear, because I thought it was when I wrote it.  In fact, although that is more or less correct, as I understand it, the situation isn’t quite as straight forward.

The distinction between evasion and avoidance is relatively new, and it originally emerged in the States, notably in a legal judgement delivered by the Supreme Court Judge, Oliver Wendell Holmes, but it wasn’t generally accepted across the Atlantic in Britain until much later.  Even nowadays the distinction is sometimes drawn between “legal avoidance” and “illegal evasion”.

The situation has in recent years become more precise with a finer distinction being drawn between tax avoidance and tax mitigation, (a distinction which hasn’t really yet hit the mainstream media even though the concept has been circulating for around forty years).

Tax avoidance is now defined as taking steps to reduce the amount of tax paid which are designed to conflict with or defeat the evident intention of the legislature, (parliament in the UK), whereas mitigation does not – for example by making gifts or donations to charity.  This concept, however, is not always clear and I see that this specific example has recently become a controversial issue in the UK.   I presume that we will meet it here as well.

Whatever, I suppose that being as tax inspector is a difficult and thankless task … albeit a necessary one, and that they deserve a day when their contribution to the functioning of society is recognized.

The appearance of the tax inspector was enough to cause palpitations for the Accountant and Director of many firms – even the most diligent and accurate of accountants or a Director trying to run a company in a transparent and honest manner according to the requirements of legislation.

As it happens, we try to scrupulous about our tax affairs and obligations. It’s not just a case of trying to avoid the consequences of breaking the law, (as a former Prime Minister was wont to say: “Pay your taxes and sleep easily”), but a question of civil duty.  We all want the state to fulfill its functions: to protect the border and maintain safety and security within those borders; to provide the basic infrastructure of the state, the roads, emergency services, basic education and health services, and so forth.  This has to be paid for somehow and tax is the community’s contribution to these meeting costs.  We all complain if they are not delivered, but don’t want to pay for them.  Part of the problem is that people don’t see the connection between the tax going from their accounts and the services provided by the state.  There is also a feeling that the money in a company’s accounts is theirs, but it isn’t … it actually belongs to the authorities and is simply held in the account temporarily.

It wasn’t just the annual inspection you had to worry about.  This checked all your tax affairs, but there are also thematic inspections, checking just one tax; dislocation inspections, checking registration details; checks on the operation of cash registers; and vrestchniy proverka, a cross check with the documentation in the inspection of another enterprise.

There were several reasons why the appearance of the tax inspector used to unnerve people:

Apart from the fact, that is, that nobody likes to be inspected.  Inspection involves a sense of judgment … and can have implications.

Then there is the fact that it is to do with tax and there is a common dislike of paying taxes.

Many years ago I was told a story, (I can’t vouch for its veracity; it sounds as if it could easily have been a joke, but it also has a ring of truth to it), of an inspector who looked at the accounts and failing to find anything wrong walked into the Director’s office, sat down and said … “Who does your accountant work for? … you or the tax authority? You are paying far too much tax.  Sack her.  I can introduce you to another accountant, a very good accountant, who can save you lots of money.”  It turned out that the accountant he wanted to introduce the Director to was indeed a very good accountant, and would probably have very little difficulty with the tax authorities … it was his cousin’s wife.

The haughty and high minded attitude of the inspectors did not help.  They had power and authority and they intended to use it.  They stood on their dignity and issued commands, (and some would issue threats along with them).  That’s not to say that all the inspectors behaved in such a manner, but quite a lot of them of them did.

I remember, for example, being summoned by an inspector to Naryn, some 350 km away from Bishkek. Having examined our accounts over the course of several days, he appeared in the office at the guesthouse at four o’clock in the afternoon and demanded that I appear before him at nine o’clock the next morning.  As it happens, I had meetings in Bishkek at that time and told the staff in Naryn that I would go up the following day.  He wasn’t happy and when I appeared he stormed into the room and read the “riot act” at me and my accountant.  We sat and listened, and when he had finished began to try and answer his points one by one. He didn’t let us finish even addressing the first one, and simply told us that he had been an inspector for x-years and we would do as he said.  I am afraid that I lost my cool and said that I was astounded at his attitude which was rude and overbearing, that if he had indeed been an inspector for x-years then he knew that he should listen to and consider what we had to say and that if he refused to do so then he could write what he liked in his report and if we disagreed with it, (and we did), then we would challenge it – and also write an official complaint about him and his attitude … and then I stormed out of the room.  Within ten minutes my accountant came to tell me that he was willing to sit and listen to us.  In the conversation that followed he eventually agreed that we had good points in answer to his four complaints, (I think it was four, but it was some time ago and I cannot remember what they all were, now), and although they didn’t amount to infringements as such, they did raise issues which should address in future.

On another occasion we received a telephone call from an inspector working in a tax department which had nothing to do with us.  “Bring me all your documents on ‘x’,” she said.  We referred her to our tax office and told her to talk to them … or bring us the proper order which we would comply with, but we would not respond to a telephone call, especially one from a tax office which was not our tax office.  Her response was to ask me my nationality.  “What difference does it make?”, I asked, “I’m a tax payer and under Kyrgyz law I should be treated the same as any other taxpayer.  You have to bring me the order and then I will comply with it.”  She kept me on the phone for an inordinate amount of time, eventually saying that they wouldn’t be an order, so I said she would receive no documents, and hung up.

On yet another occasion, I was faced with an inspector who was in uniform and showed me his identity, but, once again, had no official order.  I told him to come back with the order saying what question he was investigating and what documents I had to show him and I would comply.  When he started to get officious and quoting penalties for inhibiting an inspector in his work, I turned to the person who was with him and asked: “Who are you?”  “I’m with him,” was the reply.  “Yes, but who are you?”  I work with the tax authority.”  “Then show me your identity card.”  “I don’t have it on me.”  “Then goodbye,” I said, holding the door open, “Come back with the order and I will comply with it … come back without one and I will complain to the authorities.”  They left.

Then there is the fact that, if they find an infringement, then the inspector can impose sanctions: apart from recovering any unpaid tax, they can exact fines and “penya” a sort of compound interest on both the unpaid tax and the fine.  In some cases these sanctions can be considerable.  There are lots of stories about how the inspectors would look for, or  create, problems and then, (for a small “consideration” by way of “gratitude”), find a way to overlook the “infringement”.  Even if they weren’t looking for a “bribe”, if they could find an infringement then the budget would receive additional funds and they would gain credit for that, so there was an incentive to find something.

To make matters worse, there seems to be an assumption that businessmen are all cheats and tax evaders.  Now, tax evasion, (the practice of not paying the tax which is due, for example by running two sets of accounts and not reporting the income from one of them, or reporting expenses which are not allowed), and it is illegal and it is the inspector’s job to look for it.  On the other hand, tax avoidance, (arranging your business affairs in order to reduce or minimize the amount of tax paid), is not illegal.  Many governments around the world, (including in the UK), constantly try to find and close what they call the “tax loopholes” which companies legitimately use in order to reduce their tax burden.

Once an inspector arrived, (although this wasn’t a tax inspector), with a list of seventeen infringements already written down.  When we went through them, sixteen didn’t apply to us, and although the seventeenth was a problem – it required us to do something twice a year but we were only doing it once – she agreed that it was a minor problem and told us to deal with it in future according to the rules and regulations.

On two other occasions, an inspector has appeared at our door and before they even crossed the threshold they said: “… you’ve infringed the law and you will pay … you will play a lot!”  (I wondered if they had both been on the same training course.)  Having checked their paperwork, we told them to sit down  and check the documents they had come to check and if they found an infringement to show, and then we would talk about fines.  They found nothing and left.  One of them, when he left, turned and said how pleasant it was to come across a law abiding tax payer.

Finally, there is the fact that tax law is so complex, that it is almost impossible, (some people say that it IS impossible), to comply with all of them.

Sometimes, it seems to me similar to the story of “Morton’s Fork”.  John Morton was Archbishop of Canterbury during reign of Henry VII in the late 15th century, and is supposed to have held that “a man living modestly must be saving money and could therefore afford taxes, whereas if he was living extravagantly then he was obviously rich and could still afford them.”

In fact, the rules have changed over the years, and in my experience changed for the better.

These days, not every enterprise is inspected annually.  In Bishkek, for example, the last time we were subject to a general inspection was five years ago.  Now, the authorities use a system of “risk assessment” involving a variety of factors, including the number of years since the last inspection, and only those enterprises which obtain a score above a particular threshold are selected for inspection.  It’s automatic, and although maybe not exactly foolproof, there is no room for subjective factors.  As it happens we got selected for a general inspection this year and the process is just drawing to a close.

Secondly, the attitude of the inspectors is much more professional and far less adversarial.  They have their job to do, which may not make them very popular, but I have no problem with that.  “Let them do their job,” I say, “but let them do it properly and according to the rules.”  We are expected to follow the rules so it is only right that we should expect them to do so, too.  Doing their job involves asking questions and, particularly in recent years, they have posed particularly good, searching questions.  I always tell people not to worry too much about questions … the time to worry is when you don’t have answers to those questions, or when the answers that you do have turn out to be wrong or unsatisfactory in some way. Fortunately, because we try to be scrupulous about our tax affairs, we’ve nearly always been able to provide answers which satisfy the inspectors that we have done the right thing and acted according to the law.

I also try to keep in mind that the AKT, (the report drawn up at the end of the inspection), is just the opinion of one inspector, and an inspector is human and can be wrong.  If one disagrees with their conclusion then there is an appeals process set down in the law and, especially if it is a point of principle, one can use this and, if necessary, even submit a case to the courts … and, we have done so in the past.  Although there are lots of stories about the courts being corrupt, in my experience of them hasn’t been so bad.  The judges have heard the case attentively, asked good questions and given reasons for their decision.  Of course, it is time consuming and nerve racking and, sometimes, I have still disagreed with their reasoning, but I know why they have decided as they did.

One of the most distressing, recurring nightmares that I suffer is not one where tourists are caught up in civil disorder … despite having experienced two revolutions and numerous “little local difficulties” of this sort; it’s not having to deal with a road traffic accident or a natural disaster like an earthquake.  All of these represent and present real problems, but are easier to cope with in many respects than my bête noir: problems with the documentation.

What is so frustrating about this issue is that many “problems with documentation” should never happen, they are foreseeable and can be avoided by checking and rechecking … and checking again.  Still, they do happen, very easily – a slip of the pen, or a simple oversight of a small detail – and they can be so difficult to resolve.

It could be that someone has simply misread a figure wrong – or swapped two figures over … we had that problem on one occasion with one our registration documents … it took us ages to get it sorted out.  We’ve also faced that problem over bank transfers … the transfer has been arranged, but the money doesn’t arrive in the account … you wait for five working days and then ask for an enquiry, or search, to be made … on one occasion it took three attempts to transfer money … on each occasion a bank clerk filling in the paperwork, and on each occasion the money either being returned or credited to the wrong account.

In the case of official forms, such as social security returns, the penalties for making such a simple mistake can be quite serious – 25% of ALL the social fund contributions made by the company that year … which could well be millions of soms.  This means that our accountants are especially careful in checking and double checking every box on every form …

On one occasion we had a vehicle stopped by the traffic police in a routine documentation check, and they wanted to impound the vehicle … because the two sides of the document giving that particular driver the authority to drive it were completed in different pens, (one black and one blue).  All the details were complete and correct – the stamps were all there and in the right place … but for some reason the Notary who completed the form swapped pens when they turned it over – and nobody spotted the fact until a bright eyed traffic policeman on a routine document check.

Some problems have considerable implications.  Take the example of a flight details … Flights are crucial to any itinerary – they are fixed points around which everything else in the itinerary revolves.  It is really frustrating when the airline decides to move a flight up or back an hour or two, so that arrangements have to be amended … or even when they cancel a flight and you arrive at the airport to find that there is no plane … that you are stranded and have an extra day, or two, until the next available flight and you need to rearrange you subsequent itinerary.  Usually there is a good reason for the delay or cancellation, but not always.  Worse, sometimes the client has misread and told us the wrong flight time … and on one occasion, even, the wrong date. Usually we are able to spot the mistake when planning the itinerary, or when we are making arrangements or going through the process of checking and double checking everything … but , unfortunately, it sometimes happens that the mistake gets through without being spotted … not often, but it is not unheard of, either.

Perhaps more problematical are problems over visas.  One group had duly got their visas only to discover that the agent had made a mistake with one of them and got the wrong entry date for one of the visas … not only did they not match the itinerary, they didn’t overlap, so there was one day when they didn’t have a visa for any Central Asian country.  It took a certain amount of hard work, canceling one set of visas and applying for new ones.

Kyrgyz visas give start and end dates for a visa … Chinese visas, on the other hand are valid for use within three months from the date of issue and valid for ninety days once the traveler has entered the country.  To make matters worse, they often have to apply in their home country.  This is a problem for many travelers who are traveling the Silk Road and maybe on the road, away from home, for more than three months.  We’ve had three cases where the traveler was refused entry because their visa had already expired.

That’s nothing, however, to the problems incurred with lost passports.  One tourist was quite distraught and not so happy with the fact that we were so calm about the situation, especially as we were giving her the bad news about what it meant – the complications and delays, the fact that she wouldn’t be able to travel until she was able to get a temporary travel document from her consul … in Moscow!.  My reply was to ask her how often she had lost her passport – “Just the once,” she said, “I am not in the habit of losing my passport, you know.”  “Of course not,” I said, “but, unfortunately, you are not the first of our clients to lose their passport … and we from know from those unfortunate experiences what sort of complications you are likely to encounter and the procedures we have to go through as a result.”  I know that wasn’t a particularly sympathetic response, but it was accurate.  As it happens, her passport was found for her and she was able to leave, just one day late … but still in time to get to work when she got home, albeit straight of the plane and a little tired.

To be frank, she was lucky … it could have taken up to a week … or even more.

One pair of Brits, not really our clients, but they dropped into the office to ask for advice, had had their passports stolen in Uzbekistan and were traveling on photocopies.  How they managed to cross the border, not once, but several times, on the basis of photocopies I have no idea … but they did … or, at least, that is until they got to Kazakhstan.  The border guards looked at the photocopies and asked, “Is this a joke?” and sent them packing back to Kyrgyzstan and Bishkek.  That’s how they ended up in my office … asked what could they do next.  It didn’t help that it was the height of the season and all the flights out of Bishkek were fully booked … for several weeks … with the help of the local honorary consul and a rather expensive and convoluted route they managed to make it home, albeit a little late for work.

So, what happens if you do experience a problem like one of these?  What advice can I as someonoe working in the “travel industry” offer?:  …

• First of all … avoid the problem if at all problem:
  • Check, double check … and then check again, … all the details of your itinerary … dates, times, terminals and stations, addresses, telephone numbers … anything and everything;
  • Make copies of all you vital documents: passports, visas, OVIR registration stamps (wherever they are necessary), itinerary, reservations, tickets, credit cards, prescriptions, emergency contact numbers, etc., etc., etc.  Anything and everything.  Make several copies: pack one in your bag, (in each bag), and carry one with you … oh, yes, and leave at least one at home with someone you can contact in case of an emergency;
  • Keep you wits about you at all times … remember that you are in a strange country, you may not know the language, customs may be different, and any difficulties are likely to be more problematical than at home, so try to avoid “tricky” situations ;
• If you do have a problem then
  • seek help as soon as possible … that might well mean informing your consul and getting advice about local conditions …; and
  • Be calm, and flexible … face it, your plans are going to have to change … and even if it means that you are not going to be able to fulfill your heart’s desire, you have to make the best out of a bad situation – so look upon it as an opportunity rather than a problem …

Actually, there were two of them.  It was obvious that they were from the tax authority because one of them was in uniform.  Yes, tax inspectors here in Kyrgyzstan have a uniform.  He also showed us his identity card, and, to be honest, we might have made a mistake because we didn’t make a note of his name and number.  Normally, it wouldn’t be too important, because he should give us a copy of the order authorizing the inspection and he would identified in that – so, we would simply have to check details on the identity card against those in the document.  The trouble was, he didn’t have a document.

He said that they were working “po spiskiy” – they had a list of organizations and they were checking just one thing.  From us, they wanted to see the details our rental agreement for the office … was the landlord paying tax on the income?

He was a bit surprised when we said “No, we won’t give you that information.”

In an attempt to try and persuade us to back down, he said that he was checking us … he just needed information from us so that they could check on the landlord.

As it happens, that phrase always makes me suspicious … the suspicion is probably unfounded, but it always seems odd that it used to try and persuade me to do something As it happens, in this particular case, I know that the income is declared and that the tax due is, indeed, paid.  However, I am not convinced that, in the event that they did discover some sort of infringement there would be no comeback against us.

I pointed out that what he was asking was basically confidential information … he was entitled to receive that information, but only if he produced an order.  If I gave the information to anyone who walked in through the door, then my clients and business partners might have grounds for complaint.  Give me the appropriate order and I will give him the information … no problem.  Indeed, I would be obliged to give it to him.

It’s not the first time we have faced this problem: someone claiming to be an inspector asking for information, which they might well be entitled to receive, but without the necessary authorization.   We’ve turned them all away.

He took the point and promised to come back with an order … that was over a week ago, and he still hasn’t come back … at least, not so far.

I turned my attention to the second person who was standing by taking everything in with a wry smile on his face … he was a large, fit looking individual.  He was not in uniform, and when I asked him who he was, he simply said: “I’m with him”.  That was obvious, so I asked if he also worked for the tax authorities and when he said, “Yes”, I asked him for his identification?  He didn’t have it … it was in the car.  So I told him to go and fetch it.  He looked astounded.  I explained that if he was a tax inspector, here on official business, then he was obliged to show me his identification.  If he wasn’t an inspector, or wasn’t on official business, then he had no business here.  “You either show me your identification, or you leave.”  He chose to leave.

I turned back to the first inspector and pointed out that last March we had an incident in the office where I had a knife pressed against my throat and my cleaner had a knife pressed against her stomach.  As a result we are much more security conscious than we were a year ago and more so than most people are.

Once again, he took the point.

I ought to point out that it wasn’t an unpleasant encounter.  At all times he was polite and businesslike, if a little curt at the start.  There were no threats, nor any suggestion of anything improper …  and I also ought to point out that if he had presented me with the appropriate authorization, then we would have given him the information he needed.

The play “An Inspector Calls” was written by J. B. Priestly in 1954.  The story is set in Brumly, (a fictitious, industrial, town set in the North Midlands of England), in 1912 – just before the First World War.  The Birling family have gathered to celebrate an engagement.  The head of the household, Arthur Birling, is a prosperous businessman and factory owner – who is driven by the motivation to make money and acquire power.  His motto seems to be: “a man has to make his own way in life”.  In many ways he is a typical caricature of a “capitalist”.

Their celebrations are interrupted by the arrival of Inspector Goole – The inspector of the title.  He informs them about the death of a girl (Eva Smith) who apparently committed suicide – swallowing disinfectant and dying on the way to the infirmary.  After lots of questions, it appears that each of the characters, in their own way, was – more or less – responsible for the girl’s tragic death.

After the inspector leaves, however, they discover that he wasn’t a real inspector at all – and no-one has died.  The family are relieved … but then the phone rings: it is the police … a girl has committed suicide and an inspector is on the way to ask some questions.

Here in Kyrgyzstan, the word “inspector” usually summons up images of the Tax Inspector.

Benjamin Franklin is supposed to have said that “there are only two things certain in life: “death and taxes.”  Taxes are certainly important here in the Kyrgyz Republic – inescapable, really, although most people try to avoid paying them if they possibly can, legally, or otherwise.  It is said that a large number of businesses in the country operate in the “Shadow Economy”.

There is nothing wrong in trying to avoid tax – to minimize the amount paid.  The businessman is involved in making a profit and there are major ways of doing that … one is to increase income, and the other is to decrease expenses.  Tax is an expense – and it is legitimate to try and reduce the amount of tax paid … so long as the method employed is legal.  Tax avoidance is not a crime – Tax evasion is.

The difference is sometimes a “moot point” … a fine distinction.  Running two sets of accounts – one which you show to the taxman which doesn’t contain all your sales – is tax evasion, and illegal.  So is declaring that you pay your employees 1000 som, when in fact they receive 2000 – saving income tax and social fund payments.  On the other hand, acting as an agent – selling goods for someone else, and accepting payment on their behalf, so it is not your income … so that only the commission you receive is your income and so declared, even though it is a lot less than the cash which actually passes through your hands … is not.  Nor is employing someone, wherever possible, on a “patent”, (a document which involves a “one off” payment to the tax authorities, which a amounts to a lot less than if they were an employee and had to pay the full amount of income tax and social fund contributions).

Of course, to the government, (local or national), the tax revenues it receives are vital – and enable the authorities to fulfill their obligations as set out in their annual spending plans.  If we want the roads to be in good order; the hospitals, schools and police be available and responsive the borders to be guarded; the fire brigade and sanitary services to operate well and protect lives … and so on, then they have to be paid for.  As far as the authorities are concerned, they need to maximize their tax revenue – their income – in just the same way as the businessman tries to increase his income.

One powerful instrument available to the authorities to enable them to do this is the tax inspection.  In Kyrgyzstan, most businesses are inspected annually.  In fact, it is enshrined in law that the authorities can only conduct a full inspection once a year – unless one specially requested.  Why would one request an inspection?  Perhaps, for example, if a business was going to close, or was being sold, or reorganized in some way.  There are other inspections which take place during the course of the year – but these should be limited to specific issues.  For example: during the inspection of another company, a question has arisen and the inspector wants to verify the details on an invoice, or receipt.

Nobody likes an inspection … Your work is under the spotlight and you have to justify yourself and your actions.  In the case of a tax inspection in Kyrgyzstan, the spotlight can focus on microscopic details … and you never know where the inspector will chose to point it.  There is another factor: here the inspection can lead to the imposition of fines and penalties.   Although the inspector’s role is supposed to be to verify that everything is OK – that the taxpayer has made the correct declarations and paid all the tax which is due, there is another facet in that they all have a plan to “fulfill” – they have to find irregularities and then recover unpaid tax and impose the appropriate penalties.  The result is that the emphasis of their work is not on verifying that everything is in order – but to be to find additional funds for the budget.

I am told that, as in Roman times, many of them have “bought” their position … so there is also a need to recoup the money paid out.  If this is true, it results in a brand of corruption whereby inspectors “find” a technical, or real, infringement of the legislation and then offer to “forget it” or “overlook it” in return for an ex-gratia payment – a bribe (vzyatka in Russian – also known as “blat”).

Why do I keep saying things like “or so I am told”? – because my experience is fairly limited.  As a foreigner, people are reluctant to approach me directly … and so I cannot say for certain, from personal experience, that this is the case.  What I can say is that this is the general impression.

In another play – “The Government Inspector”, by Nikolai Gogol, one of the characters accuses another of “taking more than your due”.  He doesn’t accuse him outright of bribes – simply of demanding too much. Bribery was, apparently, so built into the system that the play is able to exploit the theme, exposing all to ridicule.  In fact, Gogol used the play to ridicule the extensive bureaucracy of the Russian government – with its inherent corruption, with the message: “If your face looks crooked – don’t blame the mirror!”, and, by all accounts, Tsar Nicholas I enjoyed the play immensely, despite the fact that, as he himself is said to have commented, the play ridiculed everyone, most of all, the Tsar himself.

To be fair – I suppose we have ask the question “when is a bribe not a bribe?” – that may sound like sophistry … but put it this way: “when is gift a bribe?”, and it makes a bit more sense.

The Americans have an anti-corruption law which prohibits American companies from paying bribed … but it allows the payment of “facilitatory payments”.  Basically, if a low level bureaucrat can old up some procedure but by giving them a small gift as expression of gratitude for speeding up the process … then this is permitted – whereas paying a high ranking official for granting certain privileges … which may, (or may not), be granted without the “gift” is not.

Clearly, paying someone to “overlook” an infringement of the legislation would not be countenanced – nor should it.

We have been fairly lucky in our dealings with the tax authorities.  I put that down to my accountant being scrupulous in all matters concerning our tax affairs.  She is VERY meticulous in this respect – no easy task given the labyrinthine system of taxes and tax legislation here.  For several years, this resulted in our being awarded “spravkas” – certifying that there had been no infringements at all.

One year, however, the inspector thought she had identified an infringement.  No amount of argument could convince her otherwise.  We said that if she insisted on stating that we had made a mistake in her report then we would appeal.  She “stuck to her guns” and so we appealed.  We won the appeal – from the judgment it appears that there was a specific instruction that upheld our argument … but to this day we have not been able to find a copy.

Then, we received an inspector that seemed determined to find fault – even if there was none.  He made me feel like Arthur Birling in Priestly’s  play.  I was the nasty capitalist – intent only on making money and willing to stop at nothing in the course of doing so.  He was the equivalent of Inspector Goole – here to expose my guilt.

His case was technical and rested on one phrase in the Tax code.  Like the previous inspector – we could present no argument which could persuade him otherwise.  Not the fact that the Tax Code includes procedures which we have meticulously followed …  nor that it limited his remit to just the period since the last inspection.  To be fair to him … IF we considered only the one phrase on which case rested, then he had an argument – but if we considered the Tax Code as a whole, then he didn’t.

He, too, “stuck to his guns” and wrote in his report that we owed nearly two million soms in taxes, (about USD40000).  We appealed and lost the first stage of the process – where the tax authority, itself, considers the appeal.  So, we went to court.

The court decided in our favour.  The tax authority appealed, and once again, we won the argument in court.

To make matters worse, however, we argued that the inspector had infringed the proscribed procedures in several respects:  He should only have considered one year – since the last inspection – but decided to go back, instead, to the beginning of the company’s operation – beyond the six years of tax liability;  He appeared to have “invented” a new procedure which was not proscribed in the legislation; Documents were not properly formulated – the necessary stamp certifying an official signature was missing; The correct procedures were not followed – documents were issued without consultation; Papers presented to the court, which should also have been sent to us – were different to the ones which we actually received by registered post – even though they bore the same reference number, date and signature; There was an attempt to order a re-inspection of the previous year’s tax reports – including the inspector re-inspecting his own work.  And there was more …

I am not sure why this happened … Was the inspector looking for a “gift” in exchange for overlooking the alleged “infringement”?  (If so, he never asked – and we never offered.)  Was he simply trying to fulfill “the plan” – to find infringements and so elicit supplementary payments to the budget?, (and failing to find one, he simply became over zealous and fixated on one phrase of the Tax Code).  Had he really found an inconsistency in the tax legislation which needs to be addressed – and was sticking to a point of principle?  (In which case let the legislators address the issue – but in the meantime, we have fulfilled our obligations under the law as it stands at present.)

Even if I am tempted to think otherwise … let me be generous and assume, for the moment, that it was the latter.

I wish I could say that it was now all over – and could relax once more.  Although we won the court case and have a judgment in our favour, I have to note that, technically, the authorities have three years to consider an appeal to the Supreme Court.  Also, just as in both plays the final curtain down with the expectation of an impending visit by yet another inspector … after nine months of dispute, we are now anticipating our next “annual inspection” which falls due in a very short time.

What will that bring … ?

In fact we had more problems … but worse still, this case wasn’t over yet.  The authorities decided to appeal once more to the Supreme Court, who declined to reach a decision and, instead, they sent the case back to the lower courts.  So we had to go through the whole system once again.  We won the case again in both of the lower courts and finally ended up back in the Supreme Court, but this time before a different set of judges, who grasped the nettle and eventually decided in our favour.

Although I could have done without the protracted stress and worry that the whole process entailed, I did get one positive feeling out of the experience … the legal system did work.  I know that it is easy for me to say that because we eventually the case, and I wonder if I would have felt so positive if we had lost it.  To be fair, however, it seemed to me that the judges were meticulously fair and reasonable and they were very thorough in considering the details of the case.

So, I suppose we have to agree with Shakespeare that: “All’s well that ends well” …  mind you, I could have done the two years of stress and uncertainty!