Pensions and wages at spending units are paid contrary to exporter’s lawful rights
Premier Yushchenko’s assurances about the fulfillment and overfulfilment of budget tax revenues leave some doubts. Industrialists claim that these budget items appear rather optimistic largely due to breaches of the laws regulating the return the value added tax. Experts maintain that the VAT debt of the state to industries has reached UAH 4 billion.
“They found a very simple way to implement the budget by holding back the money and that’s precisely what the government is doing,” Vadym Hurov, first deputy chairman of the Verkhovna Rada Industrial Policy Committee, told The Day, adding, “This could have grave consequences. The burden on the exporters is far too heavy. In fact, it is an additional, in other words, unlawful tax. It is also unfortunately true that the parliament is unable to either follow or solve the situation because it really doesn’t work.” He noted that non-return of the VAT is a bane for Ukrainian industries, especially metallurgy.
“The state has VAT liabilities toward all exporters; considering that metallurgy makes up almost 50% of the Ukrainian exports, our industry (77% of the products being exported) suffers more in this respect than the others,” says Serhiy Hryshchenko, deputy chairman of the Industrial Policy Committee. “Committee estimates point to UAH 600-650 million worth of VAT still to be returned to the metallurgical enterprises. The state has no legal grounds whatever for holding back this money. A conference dealing with measures to stabilize the mining and metallurgical sector was held January 10, in Kryvy Rih, presided over by President Kuchma. Considering its findings, the president ordered timely current VAT repayments from the budget for enterprises of that sector and the development of a reimbursement schedule concerning the liabilities accumulated in 2000. The presidential directive is to be carried out by March 2001. The government is trying to hold the money longer and is in no hurry to settle with enterprises. They are looking for any possible ways to balance VAT liability nonpayment, busying themselves with imports that are not actually necessary, using import VAT to make up for the export tax. In addition, certain enterprises received loans under government guarantees and now they propose to carry the VAT liabilities on account of such loans. The state owes the Illich Integrated Iron and Steel Works, an almost one hundred percent exporter, some UAH 200 million as of January. At present, the Illich Works proposes to offset this debt using what it owes the state for the state’s block of shares.”
Mr. Hryshchenko also stresses that such nonpayment of VAT debts damages Ukraine’s international image. “There are many joint ventures in metallurgy, like the Ukrainian-Spanish Intersplav, and enterprises with 100% foreign capital, like the Canadian Midland having an interest in Zaporizhstal. Foreign partners are amazed at what is happening in Ukraine and say that not returning VAT is a state racket”.
Our steel workers understand the difficulties involved in getting budget revenues, the need to pay pensions and cope with other social problems, but the fact remains that the exports suffer today, and exports also mean currency stability.
Oleksandr Temkin, sales manager of Intersplav told The Day, “The state owes us UAH 9 million in terms of VAT. The fact that this issue remains open heavily affects our current assets. We have to apply for loans, and this undermines the company’s viability, because we also have to use part of our current assets as collateral or interest on credits. All this means a lot of red tape. This debt remains unpaid month after month, we are experiencing an increasing shortage of working capital, so we can’t buy as much raw materials as we need. As a result, we have to cut production.”
Muhammad Zahur, chairman of the board of the Eaststeel Group (registered in the US), current lawful owner of the electric steel smelting shop at the Donetsk Steel Works, with $85 million worth of investment confirmed by the State Property Fund, told The Day that the company as a large metal exporter is alarmed by the budget VAT return problem, for the amount at issue has reached UAH 27 million and another 9 million is coming due. The result is a decline in production and an increase in the cost of producing steel, possible manpower reductions, and back wages. In fact, Mr. Zahur stressed, wage arrears appeared in April 2000 and now their investment practically does not work, because the company had to shut down its hi-tech electric furnace.
Oleksiy Kucherenko, head of the Zaporizhzhia regional state administration, told The Day that holding back VAT compensation means reductions in current assets and has a negative effect on business performance. He sees the crux of the matter in the discrepancy between the legally adopted amount of the tax and its actual presence in the budget. The disproportion, the governor believes, is clear evidence of the overrated VAT, which should be lowered from the current 20% to 15%. The problem is aggravated by sham firms exporting nothing, yet submitting forged documents to tax authorities and demanding return of the value added tax. Such criminal patterns have up to eight levels of concealment, says Mr. Kucherenko, so investigating every such case is far from easy. Such patterns are used everywhere, resulting in a lack of state money to refund the tax to bona fide taxpayers. And, as we recall from the Soviet period, shortage always causes struggle at the regional level, in the center, and the level of the State Tax Administration. Some enterprises manage to get exclusive guarantees of 100% compensation, others are do not, and they find themselves on unequal terms, Mr. Kucherenko believes. In his words, this problem will never be solved algorithmically, giving rise to subjectivism, something described as getting things by pull under the Soviets.
Oleksandr Narbut, deputy chairman of the Ukrainian Taxpayers’ Association told The Day that the Ukrainian budget is one fond of taking but even more fond of never giving back. When asked about the VAT problem, he said there was nothing coincidental about NSDC Secretary Yevhen Marchuk recently dwelling on proposals being prepared to annul VAT as a tax yielding no budget returns. Mr. Narbut believes that this approach is explained by negative budget income statistics due to lack of consideration with regard to certain aspects; assuming that exports are in excess of imports, VAT compensation could exceed VAT returns, while there is no budget expense item stimulating exports. The result, in Mr. Narbut’s opinion, is that the tax laws are not supported by the budget, as evidenced by the arbitrary practices of tax authorities in returning VAT to exporters, since no one is making any corrections in the rigid plans of tax receipts. Everything happening in Ukraine, Mr. Narbut believes, is, as before, governed by the so-called inverted pyramid law such that the state does not work for the benefit of man or any given enterprise; on the contrary, they all have to work for the state. Simultaneously, the state liberally interprets its own commitments toward us, as once again evidenced by the situation with VAT compensation. He adds that this element of government philosophy can be eliminated only by new people coming into government.
