Last week's conference summing up the efforts of Ukraine's tax service could hardly be described as an ordinary event. Mykola Azarov, Head of the State Tax Administration, set the task of 100% tax collection last year and current statistics show that it has been fulfilled almost to a T. Now is the time to try to figure out whether the economy has benefited from this impressive performance.
STA files say 8,973 criminal actions were brought against tax evaders in Ukraine in 1997 - 90% more than in 1996 (note: Azarov was appointed to the post in the fall of 1996). On STA's legislative initiative, Verkhovna Rada has repeatedly tightened the fiscal screws on enterprises, making sporadic amendments to the tax laws, changing tax rates and collection procedures. As a result, instead of the predicted 12-fold income tax revenue reductions, the national budget returns proved in excess of last year's indices. And this in an economy with half the enterprises described by Mr. Azarov as nonproductive. But there is more to the picture.
Most industrial and agricultural enterprises securing 70-80% of the gross national product practically never pay their suppliers with money, and never receive money from buyers. Mr. Azarov claims that barter deals have reached 42.4% of all settlements. Meanwhile, their ratio with major taxpayers is approaching 70%, with monetary payments about 30%. The latter is precisely the amount with which an enterprise has to make do to maintain pension fund, budget payments, wages and salaries, repayment of loans, you name it. The situation is also paradoxical in that enterprises engaged in barter transactions pay little attention if any to formal monetary costs, being concerned about exchange proportions in the first place (hence Ukraine's domestic prices that are above international ones). However, their tax liabilities arise precisely from formally overcharged costs, meaning they can never be carried out in full. Then how did STA manage this 98% collection?
Indeed, if one were to share STA's militant enthusiasm, even 100% is not a limit, since the Administration feels sure that another 40-50% small and medium businesses are not paying taxes. Add here the foreign economic sector with its superprofits. In a word, one should not be surprised at learning one day that STA has uncovered certain "hidden reserves" possessed by some big-time exporters, importers, and sectoral structures. By way of example Mr. Azarov mentioned cross-inspections in Ukraine's gas sector, jointly with Russian colleagues. Another thing that bothers him noticeably is the over-effective performance of foreign investors taking home 60% net yields. Here Mr. Azarov suggests special investment audit procedures (probably to secure his Administration against international outcry).
Despite the internal revenue people's obvious attainment, he is well aware of the limits of his authority. He can relieve small businesses of "shadow money" using the tax police, but budget offset or nonpayment problems involving large enterprises are too tough a nut to crack. Thus, offset deals constituted Hr 430 million out of Hr 2.8 billion tax revenues - or 15% - whereas hard cash returns in January-February surpassed last year's level by a mere 4%. All told, the budget lost Hr 3.8 billion last year because of various kinds of nonpayment and barter deals.
The very next day after the all-Ukrainian conference of heads of tax services the Ukrainian Association of Industrialists and Businessmen made public their views on the economic situation. Unlike tax people seeing the main threat to the economy in tax evasion and illicit business, UAIB attacked NBU's rigid monetary policy and the government's inability to tackle the nonpayment crisis.
In particular, Anatoly Kinakh, head of the UAIB, referred to a Presidential instruction whereby the cabinet had had to submit a draft edict on measures to overcome nonpayments in January. Obviously, its absence means that the government has not found an alternative that would be in the interests of all concerned. Without doubt, overcoming the nonpayment crisis, it being a global problem for Ukraine, will affect all enterprises and industries. As it is, the cabinet is debating whether to develop a mechanism for converting monetary debts into property liabilities (opposed by the Ministry of the Economy); whether to proceed with the bills circuit (with the Finance Ministry fighting to delete this clause from the document, saying no one will trust such bills on the domestic and foreign markets); whether to lower loan rates administratively (championed by UAIB and resisted by NBU).
Under a classical (competitive) market economy, it should be noted, nonpayment as such is impossible due to the customary rules of business cooperation; restrictions levied on the terms and form of payments by contract and protected by law, as well as the possibility to replace partners are a reliable investment redemption guarantee. In a post-Soviet market economy everything is much more complex and confusing. The high degree of monopolism, steady economic contacts, interregional allocation of labor, and the socioeconomic stereotype that any type of production must be kept operational, inherited from the totalitarian regime, made nonpayment a very special factor from the outset.
A period from 1993 until 1997 was marked by a massive withdrawal of monetary resources from the production-trade turnover, transferring them to the more profitable government securities market and import-trade turnover. Thus reduced, currency circulation triggered off a broadening usage of barter deals, instead of lowering prices. In addition, there were the tax laws, a powerful catalyst of soaring costs. Gradually, an economy took shape, setting prices at which no one would pay with money, let alone pay on time; where mutual debts mushroomed, mostly never to be paid, and where wages and salaries were never to be paid.
Naturally, an economy shaped over the years, in which all types of nonpayments are standard practice, often the only manner in which a given enterprise can exist, cannot be reorganized overnight. At the same time, it is clear that if the agencies responsible for overcoming this crisis cannot agree on a concerted action plan (a minor problem, compared to all the others), any serious approach to the matter is out of the question. Which means that enterprises will sink even deeper into the nonpayment and barter quicksand, with fewer monetary resources to pay wages and taxes. The budget, in turn, will have to accept payments in kind, so that before long its expenses will be determined not by the budget law, but by the necessity to find a buyer for the goods thus collected. Incidentally, 50% percent of the current budget incomes are in terms of "offset" goods and services.






