evidence indicates that firms that are members of FIGs are less dependent on internal funds to finance investment expenditures than are unaffiliated firms.'" _Dispute Resolution._ In Russia (like other transition economies), contracts are hard to verify and enforce. In a word, private property rights are not secure or credible. The lack of efficient methods to resolve commercial disputes substantially increases the cost of entry. Most business people in Russia prefer to resolve differences among themselves rather than bring cases to court. Most importantly, the regulatory regime governing enforcement of compensation for successful plaintiffs collecting debts is weak. This places the burden on the plaintiff for debt collection, where the mafia is often instrumental. Up until recently, plaintiffs have had to pay an advance fee equivalent to 10% of the suit; new rules set the fee at 5%, with fees decreasing as claim size increases. Overall, the major issue is implementation and enforcement of the law.

**_Land and Real Estate._** New startups are hindered by restricted access to commercial real estate due to monopoly ownership and control over urban land by municipal administrations. In theory enterprises have the right to privatize associated land plots; in practice, procedures are unclear. Less than 1% of the land under privatized enterprises has been privatized. Firms cannot realize the value of the land via mortgage, lease, or sale, nor can they restructure effectively by modifying structures since control rights over land flow only from the ownership. The failure to assign clear rights over unoccupied and undeveloped urban land is another restriction. Against the backdrop of the state Duma failing to devise legislatively a comprehensive Land Code that permits private ownership of land, the Government has pursued these objectives through presidential decrees. Implementation of these decrees, however, particularly at the sub-federal level has been weak; and the current land tax system contains disincentives on the part of local govermments to sell land under privatized non-land real estate. More progress has been made for establishing the legal framework to ensure leasing and selling of commercial real estate belonging to the federal government takes place under competitive conditions; but such provisions are not mandatory for regional and local govermnents.

**_Taxes._** Surveys show that all businesses in Russia complain about their tax burden, and that the burden on SMEs is particularly harsh. Although the smallest enterprises benefit from some tax concessions (the size threshold for such benefits varies across locales, and benefits often are subject to negotiation and political connections; statutorily, firms with fewer than 15 employees generally get concessions), most SMEs (above 100 employees) have to pay a profit tax, which ranges from 35% to 38%, and the VAT of 10% to 20%. But it is the sheer number of other taxes--ranging from advertising taxes to computer resale taxes--and the time needed to process the required paperwork on a monthly basis that represent a sizable operating cost, thus threatening the survival of new entrants (see Appendix for a list of the other taxes); taxes also change frequently. One tax consultant to new businesses notes that the requisite tax report requires 30 statements and the VAT instruction has changed 3 times in a 6 month period. That taxes can be negotiated (especially at the local level), reduces the stability, predictability and transparency of the tax regime.

# **IV.** POLICY ASSESSMENT

# **1. Proactive Policies Towards Incumbents and New Entrants**

As market reforms continue, and budget constraints continue to harden-ensuring that the prices firms pay for inputs and charge for outputs are in cash, timely, and free of all subsidies (including direct budgetary subsidies and off-budget sources of support, such as permitting tax arrears and soft bank 7