VAT will not be refunded to entrepreneurs
At a recent press conference Hryhoriy Operenko, deputy chairman of the State Tax Administration of Ukraine, announced that, owing to untaxed profits of state-run enterprises, the 2005 budget will show a deficit of 4 billion hryvnias. When this year’s budget was being drawn up, the tax administration was instructed to collect UAH 5.9 billion from state-run businesses. This immediately proved to be a non-starter. The forecast has come true: only 2 billion hryvnias are likely to be raised by the end of the year. Although the previous cabinet was cautioned, next year’s draft budget has again set the tax authority the unattainable goal of collecting UAH 3.9 billion, Operenko said. Even now it is possible to predict where the hole in the 2006 budget will be.
As a matter of fact, the tax authority is offended that the president committed all tax policy issues to the Ministry of Finance, thus stripping the tax administration of the right to make proposals. This applies first of all to the VAT. Operenko claims that the tax authority does not care at all about the VAT rate, but he still insists that this should be taken into account when budget revenues are being projected.
The VAT is a very painful problem for the budget. Although the tax administration is bragging about collecting UAH 14.6 billion this year, VAT liabilities still remain a byword. Many experts believe that unpaid VAT allows the government to say that it has fulfilled the budget.
The exact amount of unpaid VAT is anybody’s guess, while acting Minister of Finance Viktor Pynzenyk claims that outstanding payments had diminished to UAH 2.6 billion by September. He says these arrears will be offset by overfulfilling the VAT revenues plan. Incidentally, the budget VAT refund plan, which was fulfilled by 85 percent in January-August, amounted to UAH 7.2 billion (compared to UAH 6.7 billion during the same period in 2004). In September alone, VAT arrears payments reached UAH 500 million.
Naturally, the tax administration says it is going to speed up collecting the outstanding taxes, which is why it is introducing a new procedure for checking the legitimacy of taxpayers’ refund claims. The procedure provides for a greater likelihood of a VAT refund on the basis of auditing (amounts to be refunded are confirmed during routine inspections), establishing clear-cut rules for tax police in the process of VAT reimbursement, and canceling a clause that calls for continuous cross-examinations of the entire chain leading to the producer.
However, all this does not mean that the whole VAT will be paid out even if there is enough money in the budget. Operenko emphasized that the lion’s share of debts is the liability that existed long before the beginning of this year. He denies rumors that the whole VAT was paid out as of Jan. 1, 2005. According to his information, the debt amounted to UAH 3 billion at the time. Currently, UAH 1.5 billion of the old debt is being handled, but no one knows when it will be repaid, because there are grounds to believe that those amounts were assessed unlawfully. The tax administration now says that only those exporters whose intermediaries work “cleanly” along the entire chain will have no problems with VAT payment. Otherwise, they will see neither hide nor hair of any refunds.
Yet, as The Day has already written, entrepreneurs are very dissatisfied with the taxman’s position. They say that it is quite difficult to gauge the honesty of your partners in market-economy conditions. Those who suffer the most are grain traders. The Ukrainian Grain Association has been announcing with enviable frequency that non- refunded VAT may cause the decline and fall of agriculture. Still, VAT is not being refunded and farming is still alive and kicking. Operenko says he is not too worried about the grain association’s statements and UAH 226-million debts to grain traders. There is no denying the many dark spots in this sector of the Ukrainian economy, which the taxation people must first clarify and only then get down to VAT refunds. Despite all the noisy scandals, the tax authorities have great trust in the mining and oil markets. At any rate, the tax administration has written off more than half their debts.
