Business Prepares to Defend Itself from VAT
The value added tax remains a sore spot in Ukrainian economic policy. The cabinet and the Ukrainian Union of Industrialists and Entrepreneurs signed a memorandum on Wednesday to coordinate efforts in administrating the VAT. The document makes it clear that Ukraine’s businesspeople are not happy about the institution of VAT bank accounts. To somehow mitigate the negative effect, the cabinet promised to set up a task force, jointly with UUIE, two weeks after April 1 (the date when these accounts will become effective) to monitor their operation, and that a forecast analysis of the advantages gained and losses incurred by such administration of the VAT will be carried out a month after the completion of the first tax period (one is left wondering why such an analysis was not done previously to reduce possible losses — Author).
The government, however, appears to disagree with many aspects of the VAT innovation. “We’ll ask the head of state to veto Law No. 4467, because it does not adequately allow for the interests of agrarian market operators and has discrepancies compared to the bill submitted,” said Vice Premier Ivan Kyrylenko, perhaps echoing the position previously voiced by the agrarian lobby. He promised that the cabinet would submit another bill regulating the taxation of agricultural export-import transactions. The process of upgrading the tax is likely to be drawn out and may even exceed the first fiscal period.
Yet the cabinet shows a resolute stand and, with only a few days left before April 1 and continues to say that the system of special VAT accounts will be instituted on schedule. During a hotline session last Tuesday, Deputy Finance Minister Oleksandr Yaremenko shared the good news that the resolution on the VAT account operating procedures was practically ready and that it would be adopted in the next couple of days. He also admitted that the quality of the document would be immediately questioned, considering its being prepared on such short notice... The president instructed the cabinet to take measures to explain the new VAT payment procedures to the taxpayers and promptly respond to their proposals. But how is one to explain something no one has read?
Deputy Finance Minister Vadym Kopylov said automatic VAT refunds, starting April 1, would be effective only for the largest exporters with exports above UAH 250 million as per last year’s direct contracts, and with UAH 100 million worth of assets; also, that the automatic refunds bill could be passed within two months. It is safe to assume that a number of people, in the governmental camp (finance ministry records point to UAH 6 billion worth of refund applications) and in business quarters, will resist the bill. Simultaneously, the cabinet, beating off verbal attacks from Ukrainian business circles, is trying in every way possible to propagandize the new procedures. First Vice Premier and Finance Minister Mykola Azarov declared that money in VAT accounts could be drawn as other payments to the budget and pension fund, and that this would help reduce freezing such money in the special accounts to a minimum.
Meanwhile, business circles describe this VAT innovation as an inroad, stressing that, economically speaking, the special account stunt verges on absurdity. “With loopholes such as tax exemptions and free economic zones, there is no way to patch them up with these accounts,” Oleksandr Narbut, Deputy Chairman of the UUIE, told The Day.
The US Chamber of Commerce believes that the institution of VAT accounts might have negative consequences for a number of businesses and the Ukrainian economy in general as well as that the new procedures do not conform to the principles laid down in the Constitution and other laws of Ukraine. In particular, it is pointed out that withdrawing money in VAT accounts from the turnover of businesses will result in an overall reduction of their cash on hand and will necessitate the use of outside funds, eventually causing credit resources to become more expensive and the prices of goods to rise, thereby kindling inflation.