Economy for the Week

However, judging by the kind of politicians chosen in the last parliamentary elections, our people are not yet fully aware that every voter who goes to the polls is in fact answering the question of what share of his/her personal income he/she will allow the state to take away. Strange as it may sound under our conditions, voters are the chief bidders determining what the state will cost in terms of taxes. Now in this campaign as well the voters will de facto have to decide how they want to live. The point is that a five-year "exchange" agreement should be concluded between the government and the President, who organize the production of public benefits on behalf of "the people," on the one hand, and a society whose interests are expressed by a Parliament that approves tax, on the other hand, to the effect that the state will set prices for its services which the population (under the existing political balance of forces) will agree to pay.

Unfortunately, most of the "tax claims" of presidential candidates are secret from the public at large. And not only because the candidates do not think it necessary to make public the key provisions of their programs. By all accounts, the ordinary Ukrainian voter is so far indifferent to his/her right of choice. Otherwise he/she would never have put in the lead in presidential polls the authors of the current tax system.

The week before last, Verkhovna Rada Speaker Oleksandr Tkachenko (as he says himself, not yet the first but no longer the second person in the state) promised that there would no tax innovations this or next years. "There were proposals to form the 2000 budget on a new tax basis. Undoubtedly, the year 2000 cannot be experimental, the budget will be formed on the existing tax basis, with due account of adopted amendments (changes in tax laws) and the budget resolution. We are going to discuss the tax and budget codes during the fourth session and put them in the 2001 budget as a key element," the Speaker said.

Previously, both Parliament and the government suggested that the 2000 budget be formed on the basis of the Tax Code (collected tax laws of Ukraine) which envisions introducing changes in the existing tax base. Several versions of the Tax Code - a governmental and a number of parliamentary ones - were worked out. But it is not ruled out that the position of taxpayers would only worsen after passing the Tax Code (in any version).

Analysts at the Center for Market Reforms (CMR) run by Volodymyr Lanovy estimate that "the existing tax situation will remain without marked improvements this year and in 2000." The experts proceed from the current government's inability to effect constructive changes because it does not think the tax burden is excessive (according to the Premier, Ukraine has the weakest tax pressure in Europe). The same is evidenced by the draft Tax Code submitted to Verkhovna Rada, and 30 bills aimed at increasing the tax and fiscal burden by at least another UAH 4 billion. As to other tax concepts, the CMR considers them either overtly leftist or "insufficiently concrete."

According to CMR estimates, presidential decrees are also aimed at strategic regulation of the tax system. "Under election campaign conditions, they are designed to ease tax pressure a bit but still pursue above all their own objective, to increase government borrowing to replenish budget coffers as well as correct the 'stupidest' instances of double taxation..."

However, the intention "to leave everything as it is" is not as harmless as it may seem at first glance. The whole point is that they want to leave intact a disgustingly unfair system of taxation. According to the Harvard International Development Institute, about 60% of all budget revenues come at the expense of denationalized or mixed-ownership enterprises. These enterprises have no access to budget money and depend exclusively on the solvent demand for their goods and services. Another 30% of budget revenues come from enterprises that account for the lion's share of state support: in agriculture, fuel and power engineering, and other so-called basic industries. The remaining 10% of revenues are given by shadow-economy businesses which produce 60-70% of GDP. Thus, the main fiscal burden falls on the most viable cost-effective enterprises.

As a whole, the years of reforming the tax sphere has brought only one achievement: entrepreneurs close to the authorities have at their disposal some effective mechanisms of a lawful tax avoidance. First, these are official exemptions. Secondly, semi-official exemptions, payment deferments, and debt write-offs. Thirdly, nonuse of bankruptcy procedures or, in other words, unpunishable insolvency (which usually ends up in the same tax exemptions and debt write-offs). Experts have calculated that if the "selected" enterprises did not enjoy such privileges, the level of fiscal earnings would reach an astronomic value of the two-thirds of GDP.

Incidentally, the tax system has received a few more exceptions to the rules in the past two weeks: "The State Tax Administration should allow the Chasoviarsk Refractory Combine to defer repayment of its debts, incurred by June 1 with respect to payments to the state budget and state-run target-oriented funds, for a period of 36 months without charging fines and penalties, provided current payments are being made," the Cabinet of Ministers said in a resolution of June 29. The Cabinet also decided to grant the Black Sea Shipping Company a grace period in repaying its budget and fund arrears until the end of this year, and to unfreeze the firm's accounts, the Cabinet press service told Ukrayinski Novyny. By the Cabinet of Ministers resolution of July 5, the Ukrresursy State Enterprise was designated Ukraine's sole importer of Azerbaijani diesel fuel for the agro-industrial complex, while the Ukrahrotekhservis concern will be the all-Ukrainian operator of fuel supplies. Both companies will have their VAT payments and payments with respect to fuel excise duty promissory notes deferred until November 1, 1999, and December 1, respectively. Still earlier, on June 18, the Cabinet of Ministers resolved to include oil in the list of critical imports, thus exempting the whole oil-importing business from paying VAT.

It is worth noting that on July 8 Verkhovna Rada turned down the bill and the presidential decree empowering the Cabinet of Ministers to alter excise duty rates and import customs duties on excisable goods. In addition, Speaker Tkachenko intends to instruct the Cabinet to cancel the additional duty on imported goods - 2% of their customs value imposed for a period from July 1 to December 31 this year. Naturally, such restrictions are not to the liking of but may be tolerated by the Cabinet of Ministers. Nobody has so far deprived it of the right to grant tax privileges to "its boys." And nobody voluntarily waives such rights.

Entrepreneurs, deprived of governmental care, agree today to legally pay taxes a fourth of their incomes. Tomorrow, this figure will further decline, and the number of those who protest with the hryvnia will rise. Yet, it is not a financial protest but a conscious political choice that will withdraw the status of criminals from our taxpayers. In a word, may all of you make wise decisions!

By Iryna KLYMENKO, The Day