The President Has “Introduced Changes” into the Government
On June 11 President Leonid Kuchma leveled scathing criticism at cabinet ministers in charge of the economy for their failure to effectively tackle the value-added tax (VAT) problem. Speaking at a Kyiv conference on VAT issues, the president emphasized that the government had drawn no conclusions after a similar meeting held three months before. “The situation has worsened since that meeting, even though there was more than enough time to put things in order, especially since problems with the VAT cropped up much earlier than three months ago,” said President Kuchma. “Never in all the years of independence has the situation [in the VAT sphere —Author] been so critical. The main blame lies with the Tax Administration and, above all, its chairman Yury Kravchenko,” the president noted. On the same day the head of state accepted the resignation of Ukraine’s “chief taxman.”
Addressing the government officials in charge of the economy, the president pointed out, “You’ve been carried away by administrative methods instead of studying the problem on a scientific basis.” President Kuchma also criticized Mykola Kalensky, chairman of the State Customs Service, for allowing VAT to be increasingly paid with import bills of exchange. “Mr. Kalensky, I praised you too much in this respect,” he said, adding, “If you cannot drop bills of exchange, please bring them under strict control.” The president also criticized Mykola Azarov, First Vice-Premier and Minister of Finance, for failing to ensure coordination between the Ministry of Finance, the State Tax Administration, and the State Customs Service. “There is no cooperation whatsoever between the three foundational pillars: the finance ministry, the tax authority, and customs. This mechanism must work to earn budget revenues, not just for its own sake,” President Kuchma emphasized. He reminded Mr. Azarov that when he was appointed First Vice-Premier he had persuaded the president also to assign the Ministry of Finance to him. “You explained to me that you should be coordinating those fellows’ actions. So please coordinate, don’t just complain about each other,” the president added.
It should be recalled that the Tax Administration announced the other day that it might fail to meet the budget target of collecting VAT and other taxes by UAH 4 billion. But the Ministry of Finance thinks that the tax people’s arguments are “totally unfounded.” According to Petro Andreyev, chief of the ministry’s department for tax and customs policies, the ministry does not support this kind of initiative because it believes that replacing VAT with the sales tax will only speed up inflationary processes. Mr. Andreyev says the finance ministry does not perceive any theoretical flaws in the VAT, only the way this tax is being levied and monitored. The financial expert noted that VAT has the advantage of being absolutely neutral with respect to the producer, which stimulates greater industrial output.
Business circles take a different view of the VAT “sore point.” Anatoly Otchenash, president of the Avtoalyans Financial Group, told The Day, “VAT creates real problems if it is applied in a situation where there is no added value; and things are far from ideal in this field.” Vyacheslav Kredisov, leader of New Formation, a civic organization of entrepreneurs, told The Day: “The Tax Administration views VAT as the main source of budgetary revenues. Instead, it is the tax on profit that should be the main instrument for dealing with entrepreneurs. Entrepreneurs, including those in our association, consider VAT one of the most destructive taxes, which literally stifles the entrepreneur and robs him of money, irrespective of whether or not he has marketed his products.” According to Mr. Kredisov, in a number of European countries this tax is either absent altogether or is very low. For example, in Switzerland it amounts to 6-7%. “Entrepreneurs will always give as hearty a welcome as possible to any attempts on the part of this country’s leadership to relieve the tax burden,” Mr. Kredisov concluded.
