Constitutional Structure of Russian Government

Since the disintegration of the Soviet Union in 1991, Russia has experienced drastic economic and legislative reforms to adept itself into the new model of capitalistic free market economy. The Russian government has made efforts in establishing a new statutory framework, which substantially differentiate itself from that of the soviet time, to bring the country up to modern standards. Considering the relatively short time since its new regime, Russia has developed its legal structure at a fairly quick pace and in a fairly large scale. Therefore, current Russian legislative system is still deemed very unstable and not well established. Former soviet communism regime is often blamed for the problems in current the legislative system. However, it is the historical root of Russia deeply influencing the ways of conducting business practices: religion and Tsarism set up the very foundation of the weak legislation. Historically, neither the Orthodox Church nor the Tsars made an effort to push the growth of law as an educational pursuit that was seen in the West (Centreeurope.org, 2008). Although Russia has had some of the best constitutions in its history, with its earliest law code known as Russkaya Pravda written under Yaroslav the Wise dating back to the 11th century (Beard, 1999), the legislation yet only tended to protect the nobles and not normal citizens. The Russian citizens were not actively involved in the legislative process when the Tsars had the complete power of justice. Such practices ended with the revolution in 1917, and then 70 years of communism established a socialist legal system which significantly abolished the Western legal concepts.

Today, the consolidation of the Russian legal framework still remains an ongoing process and one of the highest priorities of the Russian government, with major changes being anticipated in many key areas.

Constitutional Structure

The Constitution of the Russian Federation was adopted by national referendum on December 12, 1993. The Constitution defines the federal sovereign power, federal structure and governing system, which is modeled after many Western democratic systems embracing the doctrine of separation of powers by composing of three branches: executive, legislature and judiciary. The Constitution also specifically emphasized self-determination, human rights and civil liberties of private citizens as key points, as no other form of democratic government ever has existed before in its history.

Federal structure

The Russia Federation is comprised of 83 federal entities, among which are 46 oblastey (provinces), 21 republics, 4 autonomous okrugs (districts), 9 krays (territories), 2 federal cities, and 1 autonomous oblast. (CIA, 2011)

While the Constitution granted those entities certain autonomy over their own internal economic and political affairs, it also sets out a general list of powers reserved to the federal authorities. The Constitution also empowers regional bodies to pass laws, provided those laws do not contradict the Constitution and existing federal laws. (Zubarev, 2008)

Executive branch and structure

The highest executive power is split between the President and the Prime Minister, with the President being the dominant figure. The President is elected by popular vote for a four-year term, which was later amended to six-year term by the parliament in 2008. The President has the right to choose the Prime Minister with the approval of the State Duma. And as the head of the state, he makes decisions on domestic and foreign policies, holds the position of commander-in-chief of the armed forces, possesses veto power over legislative bills, issues decrees and directives that have the force of law, resolves issues of citizenship of the Russian Federation, awards state decorations and grants pardons. (Russiapedia, 2011)

The executive branch is headed by the government of the Russian Federation. Following the major reform of the executive branch in 2004, current structure of the executive branch looks as follows: (Zubarev, 2008)

the government,

federal ministries (mainly responsible for legislative activity in their sphere and the coordination of subordinate agencies and services),

federal agencies (mainly responsible for licensing, permits, etc. in their established sphere),

federal services (controlling functions). Federal agencies and services may be subordinate, either directly to the President (such as Federal Security Service), to the government (such as the Federal Anti-monopoly Service) or to a particular ministry.

Parliament and legislative process

The legislature is represented by the Federal Assembly of Russia, which consists of two chambers: the State Duma – the lower house, and the Federation Council – the upper house. The two chambers possess different powers and responsibilities, while the State Duma is of more significance, as the State Duma carries the main responsibility for passing federal laws. Although bills may originate in either legislative chamber (or submitted by the President, the government, local legislatures, the Supreme Court, the Constitutional Court, or the High Arbitration Court), they must be first considered by the State Duma and be adopted by a majority vote before it could be turned over to the Federation Council, which has 14 days to take a vote on it. If rejected, the bill will be returned to the State Duma, which then can only pass it with a two-thirds vote again in the same form. If a bill is adopted by the Federation Council, it must be signed by the President to become law. The President has a final veto, but the State Duma and Federation Council also have the overriding power by passing a two-thirds vote. (Fischer, 2006)

Judicial system

The Russian judiciary system comprised of three types of court:

The courts of general jurisdiction, subordinated to the Supreme Court;

The arbitration court system under the High Court of Arbitration;

The Constitutional Court

The Ministry of Justice administers the judicial system, and the General Prosecutor’s Office, Internal Affairs and Federal Security Service perform the duties of law enforcement. (Zubarev, 2008)

Legal system

The Russian legal system is a civil law system, with limited involvement of precedents in judge’s decision on certain issues. Major codes governing business activities include Tax Code of the Russian Federation, Custom Code of the Russian Federation, Labor Code of the Russian Federation and etc.

Tax

Currently, Russia is undergoing in significant tax reform. In August 2000 Part II of the Tax Code was passed and became effective in January 2001. However, many tax regulations are still in transition. The major taxes provisions include: (Zubarev, 2008)

Profit tax. Profit tax is levied at general tax rate is 24% on enterprise’s gross profit, subject to various exceptions.

Value added tax (“VAT”). VAT is calculated on the sale value of goods, services or works at general rate of 18%, subject to certain exceptions.

Excise Tax. Excise tax is levied on the sale or import or export of certain goods including alcohol, tobacco, jewelry, cars, oil, gas and etc. The tax rate varies for each product.

Land and property taxes. Land and property taxes are levied by either local or regional authorities at a rate determined by the property’s location.

Personal income tax. Personal income tax is calculated at a flat rate of 13%.

Property

As defined by the Constitution, Russian citizens enjoy general rights to own, inherit, lease, and mortgage and sell property; although many gaps and ambiguities in the relevant legislation still exist. The Land Code, which came in effect in 2001, covers the regulation over use and ownership of municipal and industrial land. Agricultural land, on the other hand, is regulated by a separate federal law that became effective in 2003. This law specifically prohibits ownership of agricultural land by foreign legal entities, or individuals, or Russian legal entities with more than 50% of their charter capital owned by foreigner. (Zubarev, 2008)

Foreign investment

Federal law “On Foreign Investment in the Russian Federation” of 9 July 1999 (“Foreign Investment Law”) is the major legislative act governing foreign investments, which provides a statutory basis for the treatment of foreign investment. It defines that foreign investors and investments shall be treated no less favorably than domestic ones, with certain exceptions that may be introduced to protect the Russian constitutional system, the morality, health and rights of third persons and state security. The law also permits foreign investment in most sectors and in all forms available in the Russian economy including government securities, stocks and bonds, new businesses, acquisition of existing Russian enterprises, joint ventures, and etc. Moreover, foreign investors are protected against nationalization or expropriation unless this is provided for by federal law. (Zubarev, 2008)

Accounting

Federal Law “On consolidated financial reporting” No.208-FZ became effective in the Russia on 10 August 2010. This Law establishes general requirements for consolidated financial statements to be produced, submitted and published in accordance with IFRS. The new Law would apply to credit organizations, insurance and other companies which are listed or quoted on a stock exchange and/or another trading platform on the securities market. Also, the consolidated financial statements according to IFRS are required to be produced in addition to the Russian statutory accounts and reports prepared in accordance with the Russian accounting regulations. This federal law is intended to improve the quality and transparency of the financial accounts of large Russian companies and to help attract foreign investment into the Russian economy. (Shvander, 2010)