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Premier Technocrat How Mikhail Mishustin made a career in politics outside Russia’s traditional clans

Source: Meduza

On January 15, President Vladimir Putin laid out a plan for sweeping reforms to the structure of state power in Russia. Hot on the heels of that bombshell, Prime Minister Dmitry Medvedev announced that he and his entire cabinet were stepping down immediately in a move he said was meant “to provide the president of our country with the opportunity to make all necessary decisions.” That same evening, President Putin formally nominated Medvedev’s replacement: 53-year-old Federal Tax Service director Mikhail Mishustin, who was promptly confirmed the next day. Meduza takes a careful look at the career of this technocrat, whose achievements include computerizing the post-Soviet bureaucracy, struggling with the consequences of the Sergey Magnitsky case, and collecting record levels of tax revenue.

The graduate student who helped sell computers to state officials

Mikhail Mishustin studied to be a systems engineer. In 1989, he graduated from the “Stankin” Moscow State Technological University, where he also finished graduate school in 1992. After the fall of the USSR, however, Mishustin didn’t seek a career in the sciences. Instead, he found a job at the “International Computer Club,” a nonprofit organization founded by Soviet scientists during Perestroika. 

“The club was conceived as a completely nonprofit organization founded for the purpose of integrating Russian and foreign computer technologies, and more specifically to attract advanced Western information technology to the USSR,” according to the group’s website. The club republished foreign articles in its own small journal, staged computer exhibitions, and made presentations to Western hi-tech companies. In fact, the organization managed to help corporations like Intel, Hewlett-Packard, IBM, Motorola, Apple, and others break into the Russian market.

The club also introduced Western businessmen not only to representatives of Russia’s emerging computer industry but also to senior state officials. In the summer of 1994, the newspaper Kommersant described Moscow’s 5th Annual International Computer Forum, organized by the club, in the following way: “The fact is that our computer companies’ biggest and most desired clients are currently government agencies. [...] And yet again a variety of major officials capable of making procurement decisions has visited the International Computer Forum.”

Mikhail Mishustin started at the International Computer Club as the head of its testing laboratory, reviewing software and hardware and publishing reports in the organization’s bulletin. In the mid-1990s, he became a deputy to the club’s director (economics scholar Levon Amdilyan) and one of the organization’s leaders. Back in 2010, Mishustin’s wife, Vladlena, was also listed as a person affiliated with the “International Computer Club” joint-stock company.

Dmitry Marinichev, President Putin’s “Internet commissioner,” told Meduza that Mishustin once recalled in a speech how, during his time at the International Computer Club, he invited Microsoft founder Bill Gates to Russia. “Mishustin met him by chance at an international conference. There was a lunch break and Bill Gates, being a liberal person, waited in line with everyone for a hamburger. And Mishustin told him about Russia, about IT in Russia, and he invited him to the country,” says Marinichev.

The story ends here, sadly. Marinichev doesn’t know how Bill Gates responded to Mishustin’s invitation. Though the Microsoft cofounder did visit Russia in 1997 (and also in 1990 and 2006), Meduza could find no public reports that he ever met with Mishustin. Gates did, however, meet with Anatoly Chubais, one of the key figures in the Yeltsin administration’s market reforms and the future head of Russia’s Unified Energy System and later Rusnano. In an interview with Kommersant, Gates said he showed Chubais “a few of our new things” and together they “went onto the WWW network.”

Mishustin worked on modernization long before Medvedev

Mikhail Mishustin began his career as a government official in 1998, starting as an adviser to the director of the State Taxes Service before he worked his way up to a position as deputy head of the agency. The tax service’s director at the time was Boris Fedorov, then an energetic businessman and politician. Mishustin was responsible for the IT systems used in the agency’s accounting and monitoring tax revenues. In a broader sense, he oversaw the tax service’s technical modernization.

In 1999, when the office was converted into the Tax and Revenue Ministry, Mishustin became a deputy minister. Largely thanks to his efforts, Russia’s tax agency later transformed into one of the most technologically advanced state structures in the country. In this role, Mishustin worked on projects that introduced digital signatures and a “single-window” system, streamlining the regulatory burden on international traders.

In 2004, Mishustin was given his own state agency to modernize: the Federal Real Estate Cadastre Agency, housed inside Russia’s Economic Development Ministry. Here he put his university education to work again, building large-scale technological systems. Specifically, he oversaw the creation of Russia’s unified system for real-estate accounting. 

In 2006, Mishustin was appointed to serve as the head of the Federal Agency for Management of Special Economic Zones, and he set about designating special zones for heavy industry, tourism, recreation, and more.

Mishustin’s academic career was taking off just as he started rising in the bureaucracy. In 2003, he defended his economics thesis, titled “The Mechanism of State Tax Administration in Russia.” Seven years later, he did the same with his dissertation, “A Strategy for Forming Property Taxation in Russia.”

In 2008, Mishustin stepped away from public service. He emphasized that it was his personal decision to resign, having agreed in advance with his boss at the time, Economic Development Minister German Gref, that he’d leave once he “completed a number of tasks.”

For the next two years, Mikhail Mishustin worked outside the government, but his new role as a top executive at the investment firm “OFG Invest” was connected to his first supervisor as a public servant — Boris Fedorov, the former head of Russia’s State Taxes Service and one of OFG Invest’s founders.

The fallout from the Magnitsky case and taxation as an IT service

In the spring of 2010, Mikhail Mishustin rejoined Russia’s public service, returning as director of the Federal Tax Service. In an interview with the newspaper Vedomosti, granted a few months after he took office, Mishustin demonstrated that he would manage the agency like a business, saying, “We are a service company that monitors compliance with tax laws. And the mechanism of this service should be as seamless as possible.”

In the same interview, Mishustin said he took the job to create electronic services. “Generally speaking, the future is in online technologies. Imagine that you’ve logged into the public services portal. You should be able to go into your ‘personal account,’ find out what you owe, and pay your taxes from your mobile phone through an electronic transfer or from a credit card,” Mishustin said. In the years ahead, this is exactly what he helped implement.

Today, the tax service is one of the most technologically advanced parts of the entire government, argues Ivan Begtin, the head of the “Open Data” project in Russia’s Accounts Chamber. “[The tax authorities] built their own data center and they have their own information systems. They’re among the leaders in all kinds of integration [of databases with other departments],” Begtin told Meduza.

In his Vedomosti interview, Mishustin also talked about electronic services and how to fight corruption. “It’s paramount that we eradicate even the opportunity for corruption, so an employee’s contact with taxpayers is minimal. That’s why electronic services are far more important than isolated campaigns to catch corrupt officials,” Mishustin said.

In his crusade to digitize Russian taxation, however, Mishustin also had to tackle some more immediate corruption. According to the newspaper Novaya Gazeta, his arrival at the Federal Tax Service put a stop to fraudulent value-added-tax (VAT) refund schemes that some officials had used to steal large sums of money from the federal budget. Local inspection boards took part in these schemes. The tax adviser Sergey Magnitsky tried to expose one of these thefts before he was jailed on spurious criminal charges and died behind bars in 2009. Under Mishustin, Russia’s VAT revenues grew and the percentage of money refunded fell.

“Mishustin is very professional with his background in IT and he’s very efficient, in addition to being a reasonable and calm-headed person,” a former member of the government’s finance and economics team told Meduza. Mishustin was nevertheless a strict manager, says a current department head at the Federal Tax Service. “He catches on quick, dives in, and wraps his head around an issue. He’s also a good storyteller and a good public speaker who can captivate an audience, almost like Steve Jobs,” says Meduza’s source.

He got even the people who’d never paid taxes to pony up

The digital technologies introduced under Mishustin helped the state enforce taxes on entire categories of new taxpayers. The actual process of introducing these new technologies, however, wasn’t always transparent. Take the arrival of online billing, for example.

In July 2012, the Federal Tax Service solicited bids on a public contract to design improvements to the agency’s cash monitoring system, refining its system for transferring data from billing to the tax authorities’ database. The procurement deal was awarded to a company called “Atlas-Kart,” which agreed to develop a solution for a single ruble. State Duma deputy Andrey Lugovoi later insisted that the firm didn’t lose at all since it emerged with a monopoly on the sale of equipment (fiscal memory devices needed for new billing procedures) that started selling well above manufacturing costs.

Additionally, according to an investigation by the website Republic, the co-owner of one of the companies that operates these fiscal memory devices (which collect data from online billing and transfer it to the tax service) was Levon Amdilyan, Mishustin’s old colleague from his days at the International Computer Club. 

Nevertheless, the transition to online billing that rolled out in mid-2016 is considered a major fiscal achievement in Russia. Small business owners also started using the new system, expanding the government’s tax base. By mid-September 2019, there were almost 3 million online billing accounts registered — nearly a million more than officials initially expected. In July 2019, a representative from the Federal Tax Service told Forbes Russia that tax revenues were up and the number of tax audits was down, though he didn’t disclose specific figures.

Mishustin also managed to enforce Russia’s tax on self-employed workers with some efficiency. His agency started registering these individuals in mid-2017. Mishustin told Vedomosti that officials conducted a survey and learned that people didn’t want to register with the tax service because of its convoluted procedures and high tax rate. In 2019, however, the agency introduced a new tax scheme for the self-employed with rates between 4 and 6 percent, and it simultaneously launched a specialized mobile app called “My Tax” that allows people to pay their taxes paperlessly without visiting any physical offices. “It’s a virtual mobile cashier’s desk (only without the cash drawer) that automatically shows how much you owe in taxes at the end of the month,” Mishustin explained. At the end of the year, he reported that his agency collected 32.6 billion rubles ($529.6 million) in taxes from Russia’s self-employed.

Another innovation Mishustin developed as head of the Federal Tax Service was the so-called “Google Tax” (a VAT on foreign software manufacturers, services, and content providers) that was introduced on January 1, 2017. Not without some difficulties, the initiative has been a success and the agency now collects taxes from hi-tech foreign businesses like Google and Facebook (as well as smaller firms), even though these companies have no offices in Russia. Foreign businesses dislike the new tax, saying it creates “substantial inconveniences” that could become an additional barrier to doing business in Russia, wrote Frank Schauff, the CEO of the Association of European Businesses. To streamline the process, Mishustin’s agency actually developed a mobile app in English for taxpayers abroad. Over the next three years, the Federal Tax Service expects to collect roughly $1.4 billion in “Google Taxes.”

Throughout his tenure as the head of Russia’s tax service, Mishustin maintained a calm and cordial relationship with big business. He got along well with this group, but always tried “to squeeze a little more.” “He’s forever suspicious that they’re still underpaying somewhere,” a major businessman told the website The Bell.

Mikhail Mishustin is clearly pleased with the results of his work at the Federal Tax Service. In late 2018 in an interview with Vedomosti, he stressed that tax revenue had grown almost 70 percent (39.6 percent, factoring in inflation) in the preceding five years, while Russia’s GDP rose at just 1.2 percent. “In other words, the difference between the growth of the economy and tax revenues is 33 times,” he said proudly. He exuded the same confidence in his speech at the last Federal Tax Service Collegium on “Tax Worker Day” in November, boasting about the creation of a “digital ecosystem” that opens the door to new approaches in tax administration.

By introducing high technologies, Mishustin made “major achievements” in increasing Russia’s collection of VAT and payroll taxes, says Evsey Gurvich, the president of the Economic Expert Group analytical center. “Thanks to digitization, [the government] has managed to bring together all transactions in the value chain and stop the main schemes used to evade taxes,” explains Gurvich.

In the first 10 months of 2019, Russia’s VAT collection rose almost 17 percent (about 500 billion rubles, or $8.1 billion). The year before, it went up 14 percent (368 billion rubles, or $6 billion). There were also gains in payroll tax collection, which in 2017 was transferred from social insurance funds to the Federal Tax Service. This was supposed to raise an additional 100 billion rubles ($1.6 billion) for the federal budget. A year later, Mishustin reported that payroll tax collection had grown by nearly 500 billion rubles.

Already an established specialist in management and the creation of hi-tech systems, Mishustin has also managed to prove himself as a team player in recent years. An avid ice-hockey fan, he belongs to the same amateur “Night Hockey League” as Vladimir Putin. As a public official, however, he’s always remained equidistant from all groups and clans, a former member of the government’s finance and economics team told Meduza. “Mishustin never had any affiliation with the political clans nor any ambitions to be prime minister,” agrees Ivan Begtin, a transparency expert in Russia’s Accounts Chamber.

“Mishustin tried to stay equidistant, but in hockey you’ve to play with someone,” a top Russian businessman told The Bell. “[In the Night Hockey League], Mishustin usually played on the team of [billionaire and close Putin friend] Gennady Timchenko.” A source close to Russia’s ministerial cabinet told Meduza that Mishustin also took Economic Development Minister Maxim Oreshkin under his wing and “showed him the ropes.”

“I consider Mishustin to be a talented engineer and the only person in the government with systemic thinking, an understanding of information technologies, and a grasp of their deep structure and mechanics,” says Internet Commissioner Dmitry Marinichev. “He’s capable of building complex engineering and social systems, which he demonstrated first and foremost with his results at the Federal Tax Service.”

As Russia’s new prime minister, Mikhail Mishustin now has the opportunity to build a system that eclipses anything he’s undertaken before.