Soviet treaty cedes tax power to republics

July 10, 1991|By Will Englund | Will Englund,Moscow Bureau of The Sun

MOSCOW -- Mikhail S. Gorbachev has overcome the last major obstacle to a new treaty binding together nine republics of the Soviet Union -- but at a price so steep that the central government he now heads would be fundamentally weakened.

Mr. Gorbachev agreed to give the Russian and Ukrainian republics sole powers of taxation within their borders, a Tass report said last night. Those republics, in turn, would be allowed to determine how much money to hand over to the central government to keep it running.

Until now Mr. Gorbachev and his aides have argued that to give up the ability to levy taxes would be to strike a critical blow at the power and authority of the union government.

Without a federal-level tax system, "there would be no country," Grigory I. Revenko, Mr. Gorbachev's chief aide on the proposed new union treaty, said last month.

But Boris N. Yeltsin, who is to be sworn in as Russian president today, and Leonid Kravchuk, the Ukrainian president, have insisted adamantly on control over taxes. This one issue became the central stumbling block to the signing of the new treaty.

Finally, under pressure to show progress on his efforts to keep the country together, it was Mr. Gorbachev who gave in, according to the Tass report.

In the past two days, Mr. Gorbachev has secured the support of Mr. Yeltsin on two key issues:

* On Monday, Mr. Yeltsin agreed to back Mr. Gorbachev's economic program on the eve of the Soviet president's trip to the summit of industrial nations in London.

* Yesterday, Mr. Yeltsin said he would endorse Mr. Gorbachev as a presidential candidate facing the voters for the first time under the new union treaty.

Then last night came the Tass report revealing the deal on taxes between Mr. Gorbachev and the republic leaders. It did not say when the deal had been reached.

Mr. Gorbachev said at a news conference earlier yesterday that he expected all the amendments to the proposed union treaty to be settled by mid-July, although the Ukrainian parliament does not plan to consider the treaty until September.

He even said he expected some of the six republics that have refused to consider the union treaty -- Armenia, Georgia, Moldova and the Baltic republics of Estonia, Latvia and Lithuania -- to sign up once they saw how well it would work.

Besides ceding tax powers to Russia and the Ukraine, the economic plan also would give each of the 15 republics authority over foreign investment, Mr. Gorbachev said yesterday.

The ultimate goal, he said, is the "natural, organic integration of the Soviet economy into the global economy."

But a Soviet government that relies on the generosity of its two most important republics for its revenues could be hard-pressed to maintain much influence over the economy, observers note.

Tass said the agreement was reached under the pressure of the coming London economic summit. Soviet leaders reportedly believed that any hope of securing investment from the West depended on their appearing to be united in tackling the problems of the collapsing Soviet economy.

"We have agreed that Gorbachev will not ask for money," Mr. Yeltsin said yesterday. "The aim of the trip is to say firmly that the center and the nine republics are committed to radical reform, transition to a market-based economy, the diverse forms of ownership and privatization."

Mr. Yeltsin formally assumes power today as the first popularly elected leader in Russian history. Once considered a nuisance or a gadfly, and a man who has had bitter run-ins with Mr. Gorbachev, he now apparently stands as the victor in a behind-the-scenes revolution fought, as so many other revolutions have been, over the issue of taxation.

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