Even the internal revenue insists on the tax reform
January 28, the State Tax Administration of Ukraine (STAU) announced the results of the year 2002, once again stressing two problems: excessive tax concessions and a huge tax deficit. STAU Deputy Chairman Volodymyr Rosolovsky informed that 56% of the registered corporate taxpayers enjoyed various kinds of tax concessions, mostly in terms of VAT (43%), profit tax (31%), and land tax (20%). In nine months, the budget lost UAH 39.2 billion because of such arbitrary exemptions — or 36% above the amount of total budget receipts. STAU experts estimate that every corporate taxpayer enjoys an average of UAH 329,000 worth of tax concessions (in Kyiv it is much higher: UAH 967,000).
As expected, STAU could not prevent the steady increase of tax deficit. It more than doubled in 2002, from UAH 6.3 billion to 14.7 billion. Some of the main debtors, according to Mr. Rosolovsky, are companies in the fuel- and-energy sector. They increased their debt by UAH 266 million monthly. The situation with companies under the Ministry of Industrial Policy was also disheartening: a mere 46.8% of the cabinet-established quota on taxes.
In 2002, STAU contributed a total of UAH 40.6 billion worth of taxes and enforced payments to the budgets and purposeful state funds — or UAH 4.2 billion more than in 2001. The main sources of income were individual income tax (27%), company income tax (23%), and VAT (17%). Even though the state budget income registered a 14.5% increment, the 2002 state budget plan was not fulfilled, Mr. Rosolovsky had to admit. He attributed it to the failure to reach the key macroeconomic targets set forth in the 2002 budget program (e.g., GDP growth, industrial output, and inflation rate).
STAU made extensive use of inspections in 2002 to make up for losses in some income sources. Such inspections embraced some 244,000 corporate and 197,000 individual taxpayers. The results were amazing: transgressions were detected in 85% and 75% of the cases, respectively, which makes one wonder about the methods used in planning those inspections. As a result, the budget received an additional UAH 8.8 billion.
Mr. Rosolovsky believes that the transgressions detected in the course of inspections were largely due to the overcomplicated current tax legislation. Hopefully, the tax reform will receive a fresh impetus now that the ex-chief tax inspector of Ukraine, Mykola Azarov, has joined the Cabinet. Mr. Azarov expects the long-awaited tax code to be enacted in the first half of this year. In a recent interview with news agencies, he declared that lowering the income tax (President Kuchma signed the law amending company income tax earlier this month) from 30% to 25% was the first step in the tax reform. This spring the cabinet plans to submit a lower VAT (from 20% to 17%) bill to the Verkhovna Rada. He said that the Cabinet would shortly propose a mechanism of priority VAT compensations due large exporters using direct export patterns. “If the same company manufactures and exports goods, there is no chain, therefore, no VAT losses,” Mr. Azarov told Interfax Ukraine, adding that this mechanism would prompt Ukrainian producers to operate using “simple direct patterns,” and that such patterns would be gradually adopted by everyone. He also noted that restrictions on the usage of unlawful VAT compensations schemes would be facilitated by the application of “ordinary prices,” defined by recent amendments to the VAT and company income tax laws.
According to the first Vice Prime Minister, the possibility of lowering assignments to social funds is being considered: “If the payroll fund increases, we will be able to consider cutting the assignments, and this, in turn, will allow getting payroll out of the ‘shadows.’”
