Russian tax depletes EU aid to Chechnya

By Andrew Beatty

Date: 19/05/05

Millions of euro in EU emergency humanitarian aid targeted at alleviating extreme poverty in Chechnya is making its way into the coffers of the Russian government.

According to senior Commission officials, Moscow has levied value-added tax (VAT) on aid, including emergency food and medical supplies, from agencies operating with EU funds. Estimates of the sums involved run to tens of millions of euro.

Russia currently levies 10-18% tax on aid supplies entering Russia, as well as goods and services acquired inside the country, a practice one official from the UN's Office for the Co-ordination of Humanitarian Affairs described as "relatively unusual".

Since the outbreak of the second Chechen war in 1999, the EU has donated an estimated €170 million in emergency assistance to the republic and neighbouring regions of Ingushetia and Dagestan.

"A cynic could wonder for what other purpose that money is used," said one Commission official. Commission officials are angry that a recent rapprochement in EU-Russia relations has not made it easier for agencies to recoup VAT, nor ended other practices that make operating in the Northern Caucasus difficult.

They say the Russian authorities continue to obstruct their work and that of partner agencies.

"There is a gap between official statements and the situation on the ground", said a senior EU official. "How can we have a partnership if we don't even have co-operation?"

For most of the period since 1999 Russian VAT has stood at 20%. Aid agencies say much of this is never reimbursed.

According to Kathrin Schick, the director of Voice, a network of emergency assistance non-governmental organisations (NGOs), the Commission's strict finance rules mean that the burden often falls on agencies which find themselves out of pocket.

"In many countries we have to pay VAT and we have to claim this back to pay back the Commission, [sometimes] this is impossible," said Schick, adding that Russia and Peru presented a particular difficulty.

"Procurement rules mean that the NGO loses money and we never get it back," she said.

According to one Commission official, although it is unusual for agencies to pay VAT, they should be able to recoup losses from the Commission if they can provide evidence that they have tried to get the money back.

Both Commission and agency staff say that Russia would like to see international funding shifted away from emergency relief towards infrastructure projects.

The Commission is to propose to member states that the EU embark on improving hospitals and schools in the region.

Article reports that Russia levied value-added tax (VAT) on aid, including emergency food and medical supplies, from agencies operating with EU funds. Estimates of the sums involved run to tens of millions of euro.