When will Ukraine stop talking about tax reform?
One thousand and seventy seven... This figure disclosed by Natalia Flissak, deputy chief of the Main Directorate of Methods at the State Tax Administration of Ukraine, raises a question: is there a state on the world’s political map with this number of bylaws and standard-setting acts which essentially boils down to the phrase “taxation system”? Yes, there is one called Ukraine. Over a decade ago or so, taxes in this country were collected – not paid – perhaps because the quantity of laws, decrees, resolutions, clarifications, recommendations and other instruments was never translated into quality.
As People’s Deputy Serhiy Teriokhin told a roundtable October 11, the new Tax Code passed at the first parliamentary reading only because “the other two versions of the code were even worse.” National Law Firm chairman Yury Kryzsky even ventured to say that “the code was written not for entrepreneurs but for the tax inspection so that the latter could have a convincing and standard explanation for the existing norms and rules of administrative extortion.” Finance Minister Ihor Yushko, dwelling on the next year’s draft budget in macroeconomic terms, pointed out the advantages of a progressive, rather than conservative, scenario of economic development (in case the Tax Code is passed as a whole or some of the existing laws are amended). Meanwhile, it has become clear to the public that essential and constructive changes in the taxation system can hardly be expected in the immediate future. Sources close to the Cabinet leadership claim the new Tax Code will be adopted piecemeal, i.e., in fact from scratch. When will Ukraine at last stop talking about the tax reform? The Day has asked some experts about the dates.
Oleksandra KUZHEL, Chairperson for the State Committee for Regulation Policies and Entrepreneurship:
“The tax reform debate will only take a different turn when this problem has really been looked into. A tax reform in Ukraine is like love: everyone knows what it is but each person has his own vision of it. In my view, taxes should be reformed step by step so that citizens are not hurt. We must clearly identify how taxes should be paid and then enshrine this in a law. Our state has a huge amount of outdated taxes, for example, hotel tax, which should have been abolished long ago. So we must revise the ideology of all taxes, leave the rational matrix of deductions and then build up the ‘body,’ starting with income tax, profit tax, VAT, property tax, etc. It is equally important to establish a simplified taxation system for small and medium business. It would be a good idea to declare a tax amnesty before introducing the ideology of a new taxation system. But this amnesty should be carefully thought out and comprise the necessary administrative barriers. I am sure this would not take too much time if the tax reform process involved the public, entrepreneurs and, of course, experts.”
Serhiy TERIOKHIN, Deputy Head, Verkhovna Rada Finances and Banking Committee:
“In any country, taxpayers complain of paying too much, while the people who receive the budgetary money say too few taxes are being paid. This is a never-ending conflict. The only point is that this conflict is not so acute in civilized states as it is here. Besides, this conflict lies in the economic, and I would even say rhetorical, plane. We’ll have to address this. To solve this problem, we must do just a few things: set simple, low, and comprehensible taxes, and, secondly, pursue such a budgetary policy that people will know what their money is being spent on. If people do not see the benefit of tax payment, they will see the benefit of tax evasion. Given the absence of indispensable conditions for such reform, I do not think it will be possible in this country tomorrow. I am not too pessimistic to say this will take us centuries, but Ukraine is a paradoxical state, which defies the classics. For some reason, our economy is a derivative of politics. Today, under a system of overall irresponsibility, the executive power perhaps finds it beneficial to favor the increase of fiscal interests, while the parliament prefers backward crowd-pleasing measures. As an economist, I can only say I feel that my profession increasingly depends on politics with every passing year.”
Oleksandr BONDAR, President, Carmen Trade House:
“I equally do and do not believe that our taxation system may be radically changed. I do because, after all, this cannot be avoided. The problem is whether this will be an open, fair, and rational or a criminal state. For every man, be it an entrepreneur, a hired worker, a people’s deputy, or a tax collector, basically wants to work in normal conditions. We have obviously let this process drag out too long. Entrepreneurial entities work very little or ineffectively. Entrepreneurs, deputies, tax inspectors, and all kinds of entrepreneurial representations at the Cabinet of Ministers take different stands on and approaches to tax reformation. The former take a down-to-earth position, while the rest appeal to ‘highly intellectual’ matters and world experience, often without taking due account of our current realities. They don’t take into account that we have a host of insufficiently educated entrepreneurs in the countryside, who started from scratch and don’t have ten-years experience. They find it far simpler to evade paying taxes than go through the maze in which even tax people lose their way. In this country, responsibility has been put on the ordinary people, while laws are being designed for intellectuals. I am an ordinary person, I’ve got a family and children, and I don’t want to go to prison. I can say that, even having a higher technical education and hands-on experience, I don’t always immediately understand what the tax inspector wants me to do. This is not the done thing. The process is still continuing step by step. Now the state is gradually dropping the dictatorial methods of taxation. A debate is going on, we’ve been legally allowed to choose the organizational form of business. We can at least optimize our business legally, not criminally, within the three allowed systems of taxation. When are we going to see cardinal changes? I don’t think anybody will tell you this.”
Natalia FLISSAK, Deputy Chief, Main Directorate of Methods, State Tax Administration of Ukraine:
“I would not say we have a bad system of taxation. It is not bad at all. There was recently an international workshop attended by investors from all over the world. I presented there the taxation system of Ukraine. After I had made my speech, representatives of seventeen big companies lined up to speak to me: they said they did not know one could work normally in Ukraine. I think our disadvantage is that many do not know or understand our taxation system. In the US, for instance, an individual begins to be taught tax payment rules in their childhood: if you want to do business, you must pay this and that. And their taxation system is no simpler than ours. No doubt, our taxation system does need some modification, for life is changing. Did we previously know what futures, auctions, and so on are? We didn’t. Life is changing every day. So I think it is normal to alter the laws of taxation. As far as I see it, our taxation system is not bad. As for the new Tax Code, our goal was not to make rapid revolutionary changes in the laws, to which our taxpayers have already got used to, but to create a code. This would enable us to work and rectify the situations where the laws do not work, for if we exert pressure on businessmen, they try to evade payment. Changes are indeed needed, but whoever writes the new code, you will see in a year or two that everyone will again be demanding new changes.”
