An Inspector Calls
This page was written in 2005, and arose out of a disputed tax inspection … we appealed to the courts against the inspector’s judgment and at that time the court case described here was still proceeding.
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!
Bishkek