13. Is there any need for tax reform?

“Russia’s tax system has performed very poorly since its creation in 1991 for a number of reasons. For a start, it is a cumbersome system. Today there are about 30 separate federal taxes and over 170 local and regional taxes. Russia has 89 regional tax offices and 2,639 local tax offices employing over 180,000 tax officials. Yet, evasion is endemic as Russians are not accustomed to paying income taxes, which were unknown under the Tsars and communists. The nominal tax rates are very high, but there are numerous exemptions for a wide range of favourably treated taxpayers. Emergency tax collection involves draconian penalties, but these penalties are applied at the discretion of tax officials, leaving the system open to abuse and corruption. Regional authorities routinely issue guidelines that contradict centrally issued instructions, where the latter exist. In the absence of clear legislation and procedures, tax inspectors have tended to act autonomously, leading to a very uneven treatment of taxpayers. And while tax collection did increase before the current crisis, almost half of all average regional budgetary revenue and expenditure is now in some form of money surrogates, particularly barter.

Not surprisingly, the outcome is a tax system which fails to produce adequate revenue to government. Furthermore, it impedes growth, puts off foreign and domestic capital and drives investment under ground. A major comprehensive tax reform is therefore long overdue and represents the only feasible escape from the current trap.” (Russia's tax reform by Susan Himes and Martine Milliet-Einbinder)

“In 2001 Russia replaced its individual income tax, which had rates up to 30 percent, with a 13 percent flat tax (An income tax having a single rate for all taxpayers regardless of income level and type). In 2002 it cut its corporate tax rate from 35 to 24 percent. Russia's system is not a pure flat tax, as it retains some deductions and narrow provisions. Domestic dividends are taxed at just 9 percent. Russia's tax reforms have been a big success. In recent years, the nation's economy has grown strongly, tax revenues have risen, and tax evasion has fallen.”( The Need for Tax Reform and the Possibility of a Flat Tax for the District of ColumbiaMarch 8, 2006)

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14. What is competition?

Competition is a situation in which businesses are trying to be more successful that others by selling more goods and services and making more profit. Three levels of economic competition have been classified. The most narrow form is direct competition (also called category competition or brand competition), where products that perform the same function compete against each other. For example, a brand of pick-up trucks competes with several different brands of pick-up trucks (пикап) . Sometimes two companies are rivals and one adds new products to their line so that each company distributes the same thing and they compete. The next form is substitute competition, where products that are close substitutes(заместитель) for one another compete. For example, butter competes with margarine, mayonnaise, and other various sauces and spreads. The broadest form of competition is typically called budget competition. Included in this category is anything that the consumer might want to spend their available money on. For example, a family that has $20,000 available may choose to spend it on many different items, which can all be seen as competing with each other for the family's available money. Competition does not necessarily have to be between companies. For example, business writers sometimes refer to "internal competition". This is competition within companies. The idea was first introduced by Alfred Sloan at General Motors in the 1920s. Sloan deliberately created areas of overlap between divisions of the company so that each division would be competing with the other divisions. For example, the Chevy division would compete with the Pontiac division for some market segments. Also, in 1931, Procter & Gamble initiated a deliberate system of internal brand versus brand rivalry. The company was organized around different brands, with each brand allocated resources, including a dedicated group of employees willing to champion the brand. Each brand manager was given responsibility for the success or failure of the brand and was compensated accordingly. This form of competition thus pitted a brand against another brand. Finally, most businesses also encourage competition between individual employees. An example of this is a contest between sales representatives. The sales representative with the highest sales (or the best improvement in sales) over the period of time would gain benefits from the employer. It should also be noted that business and economical competition in most countries is often limited or restricted. Competition often is subject to legal restrictions. For example, competition may be legally prohibited as in the case with a government monopoly or a government-granted monopoly. Or tariffs, subsidies or other protectionist measures may be instituted by government in order to prevent or reduce competition. Depending on the respective economic policy, the pure competition is to a greater or lesser extent regulated by competition policy and competition law. Competition between countries is quite subtle to detect, but is quite evident in the World economy, where countries like the US, Japan, the European Union and the East Asian Tigers each try to outdo the other in the quest for economic supremacy in the global market.

15. Does competition make for (способствовать) the success of economy/business?

Top Ten Reasons Businesses Succeed - Jan B. King

1. The experience and skills of the top managers. Over half of business failures are directly related to managerial incompetence.

2. The energy, persistence and resourcefulness (the will to make the business succeed) of the top managers. Many business owners have failed or come close several times before their “instant” success. Don’t give up.

3. A product that is at least a cut above the competition and service that doesn’t get in the way of people buying. There must be a compelling reason to buy; the product is great, the people love to provide service, and the buying experience is easy and fun.

4. The ability to create a “buzz” around the product with aggressive and strategic marketing. Make scarce marketing resources count. Do as much homework about your customers and their choices as you can before investing your marketing dollars.

5. Deal-making skills to sell the product at the highest possible price given your market. It comes down to your customers’ perception of the value of your product and sometimes the power of your personality.

6. The ability to keep developing new products to retain and build a customer base. Consider gradual product development based on improvements to the current product line and sold to the current customer base.

7. Deal-making skills to work with resource suppliers to keep costs low. Keeping costs lower than competitors’ and continuing to look for cost reductions even when the business is profitable is key.

8. The maturity to treat employees, suppliers and partners fairly and respectfully. Trust and respect result in productivity increases in ways that may be difficult to see and quantify.

9. Superior location and/or promotion creating a connection between your product and where it can be obtained. Studies have shown it can take seeing your product or name seven times before a customer is ready to buy.

10. A steady source of business during both good economic times and downturns. Over the long term, develop a product mix that will include winners during good economic times and other winners when times are tough.

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