The rumors of half the private entrepreneurs’ economic death are greatly exaggerated

The Crimea is actively preparing for a nationwide protest action scheduled for February 4 by decision of the Council of Ukraine’s Private Entrepreneurs. Vladyslav Khmelovsky, coordinator of the protest action organizing committee, says the entrepreneurs’ protest was triggered up by the now applicable Ukrainian law On General Compulsory State Pension Insurance. Pension fees payable under his act have put uniform tax payers in a double taxation situation.

According to the Kyiv League of Entrepreneurs, only 42% of the uniform tax rate goes to the Pension Fund. There is also a requirement to pay 50% of the uniform tax rate for each hired employee and 32% of the wage fund to the Pension Fund. Moreover, a private entrepreneur must pay a fixed pension fee on his own behalf.

“This means a two to threefold increase in the overall tax burden,” Oleksandr Dudko, chairman of the Crimean League of Entrepreneurs and Employers, emphasizes. As he explains, what appears still more absurd is the case of pensioner businesspeople. “Doing business because it is impossible to live off their pension, they have to pay about seventy hryvnias a month to the Pension Fund, while their own pensions have been raised by a mere six to ten hryvnias,” Mr. Dudko explained. Quite often, pensioner entrepreneurs’ payments to the Pension Fun exceed their pensions.

The organizers claim the protest action’s aim is to force Crimean and Ukrainian government officials to start negotiations and make proper amendments to the tax and pension laws now in force. “We are going to make tough demands, but we want to solve problems in a peaceful way,” Mr. Dudko stressed. In his words, if these problems are not solved in the immediate future, there will be massive job cuts in entrepreneurial entities, projected Crimean budgetary revenues will be at least halved, and public-sector employees and pensioners will be unable to get paid.

The organizing committee sent an open letter to President Leonid Kuchma, saying that the current situation “could result in the economic death of about half the private entrepreneurs” and “the only way to ride out the crisis is urgent reform of the insurance fee collection system and introduction of a 16% uniform social tax.” “We want to pay taxes and cannot remain in shadows indefinitely,” Mr. Dudko said. The organizing committee is slated to hold a roundtable of entrepreneurs, trade unions, and war veteran organizations on February 2 in Simferopol. Committee members are ready for a dialog with all the political forces that sympathize with entrepreneurs. Yet, they must express their solidarity in public, Mr. Dudko says. The protest action will be held in all Ukrainian cities at the same time.

INCIDENTALLY

The following letter, dated January 16, 2004, of the deputy chairman of the Pension Fund of the Ukrainian League of Tax Consultants contains an incomplete, albeit rather extensive, answer to the demands of protesters:

In compliance with the Cabinet of Ministers of Ukraine’s instruction No. 84896 of December 31, 2003, the Pension Fund of Ukraine has considered your letter No. 20 of December 24, 2003, and announces the following:

Under the law of Ukraine On General Compulsory State Pension Insurance, natural persons, including entrepreneurs who have chosen the fixed or uniform tax as a special way of taxation, will pay their own fees at a fixed rate to be determined by a separate law. The amount now payable to the Pension Fund is to be withdrawn from the fixed or uniform tax. The fees in respect to hired employees will be assessed and paid on a routine basis.

As to making amendments to the law on a simplified system of taxation, we announce the following:

No decision has so far been made to set a fixed rate of insurance fees for entrepreneurs and to withdraw the clause on channeling a part of funds to the Pension Fund from the law on a simplified system of taxation. It is proposed that this issue be settled by means of two separate draft laws:

“On Setting a Fixed Rate of Compulsory State Pension Insurance Fees for Certain Categories of Payers.” This law suggests setting a UAH seventy monthly fixed rate of insurance fees for entrepreneurs and their families. The draft has already been submitted to the Verkhovna Rada of Ukraine;

“On Setting Uniform Tax Rates and the Procedure of Reassessing the Amounts of the Uniform and Fixed Taxes.” This law calls for setting uniform tax rates for legal entities at 3 to 5% in lieu of the current 6 to 10%. This will not change, however, the object of taxation and the procedure of paying his tax, as stipulated by the President of Ukraine’s Order, On a Simplified System of Taxation and Accountancy in Respect of Small Business. The bill also proposes introducing a new procedure of reassessing the amounts of the uniform and fixed taxes, which calls for exclusion of the clause on channeling a segment of funds to the Pension Fund as part of compulsory state pension insurance. The bill has been referred to the Cabinet of Ministers of Ukraine and will be submitted to the Verkhovna Rada of Ukraine in the immediate future.