Henceforth taxes will be levied to benefit Western creditors

Tax evasion is a problem post- Soviet Ukraine has been trying to control since the day it proclaimed independence. Moreover, the set of political slogans, under the guise of which this struggle was waged, has always been determined by the specifics of the current moment. Whether it was preparation of a new budget, or the need to bust a new clan, or difficulties with approving a new IMF memorandum, each case required a specific approach and hence a corresponding set of instrumentalities.

ELECTIONS AS A STAGE PASSED

Until very recently, the tax collectors were inspired by the idea of the coming elections. It was necessary, on the one hand, to increase budget revenues and show the electorate it could make at least some budgetary payments, and, on the other hand, to slash the financial capacities of opponents by attaching all free resources from the firms that support them. We are not going to discuss the latter goal of tax policy, for this is not within our competence. As to the former, we cannot but note: the authorities can record some outstanding (against the backdrop of its chronic failures) achievements.

First, the planned budget revenues controlled by the State Tax Administration of Ukraine are 102.1% of the target set at the beginning of this year. In other words, the consolidated budget received payments worth UAH 18.3 billion. Out of this amount, tax payments are an estimated UAH 10.2 billion, or 95% of the plan (earlier this index never passed 87%). In January-August the consolidated budget received UAH 16.938 billion in taxes, or 106% of the amount planned for that period, while the state budget got UAH 7.4 billion in taxes, or 92% of the target.

Commenting on these results, the Tax Administration notes the increased budgetary revenues: “In September, ‘live-money' revenues surpassed UAH 1.2 billion, which is almost twice as much as in the similar period last year,” the press service reports. Earlier, the tax agency chief Mykola Azarov told journalists that in September his agency had been instructed to raise budget revenues worth UAH 485 million more than those raised in August.

Another achievement in the struggle for tax earnings is connected with the arrears. As the tax press service told Ukrayinski Novyny, budgetary payment arrears decreased last September by 0.6%, comprising at least UAH 10.812 billion as of October 1. However, this achievement can only be considered as such only with reservations, for budget arrears in fact increased by UAH 912 million, or 9.2%, from the beginning of this year to October 1, with penalties and fines accounting for over 40% of the total amount. Budget payments arrears declined by UAH 681 million (5.9%) in August, coming to UAH 10.879 billion as of September 1. In addition, the service records a stabilized level of the budgetary arrears, considering that it is now impossible to significantly reduce them. We can thus say that the taxpayers' resources have been exhausted: this applies to both those who support the opposition and those who merely “maintain” the authorities.

NEW TAX WAR

If the elections were the last obstacle in the way to this country's free economic development, there would be a hope that at least in the course of two years taxpayers will live a relatively calm life. But is highly probable that precisely after the elections even the current minions of fortunes will lose all hopes for a serene life, and all without exception will fall under the budgetary press. The reason is this:

Under a governmental resolution, the former “untouchables” — the ministries of the agroindustrial complex, industrial policy, transport, energy, the Naftohaz Ukrayiny (Oil & Gas of Ukraine) National Joint-Stock Company, and the Ukrbudmaterialy (Ukrainian Construction Materials) State Corporation — were instructed to reduce their budget arrears before October 15 by selling their liquid assets and offering services worth a total UAH 750 million. To assess whether this is a little or a lot, suffice it to recall that in the worst times such an amount was a monthly norm.

The authorities' resoluteness to intensify the struggle for budget revenues is also shown by the fact that 18 of the largest enterprises of Dnipropetrovsk, Donetsk, and Kharkiv oblasts will be offered special assistance to pay their back taxes. In other words, currently loss-making steel mills, for example, will be dealt with by a special groups of experts who will be authorized to track down the export earnings and then confiscate them for the budget. As to the large enterprises, not on the list of those to get aid, they are just unlucky. They will have to pay off their debts on their own. According to

The Day's information, state tax and law-enforcement agencies have been fulfilling, in the past two-three months, their job of wresting the debts by all possible means from the enterprises, i.e., to literally block the work of the debtor enterprises, confiscating all their current material assets, for these businesses have not been settling any bank accounts for years.

HORROR OF VICTORY

And now the most interesting question: why will the presidential elections not bring along any fiscal relaxation for either winners or losers? It is very simple. Even today, each Ukrainian owes the US, Germany, France, etc., $250, and all Ukrainians owe $12.5 billion. Next year, we will be presented a $3 billion bill (or $62 for each of us, including babies and old people). Do you have this money, and are you personally ready to pay this bill? This is far from an idle question because nobody cares to answer it. One should be prepared to pay even despite the on-going violent public relations campaign about there being no money for this. Moreover, there is no other way in the world to make payments but to increase tax payments. And, with due account of the fact that all those capable of paying in full will not pay more (due to unwillingness or inability), the tax burden will also have to be placed on the privileged strata of entrepreneurs.

Moreover, the stand of the current authorities, not to refuse to pay and not to pay without striking a deal with creditors, is optimal. “Ukraine cannot bet on restructuring the payments of private investors' debts when it chooses the mechanism of resolving the debt problem next year,” presidential aide Valery Lytvytsky told Ukrayinski Novyny. “Don't believe the reports that we are conducting or planning to conduct such talks in the immediate future,” he added, noting that any initiatives of this kind should be preceded by the authorities undertaking a whole range of measures to show investors that reforms are accelerating and the country is heading for steady economic growth.

A similar view of the current state of affairs is also being demonstrated by creditors, although they know this country is unable to pay everything. As estimated by the creditor governments' Paris Club secretariat, Ukraine does not yet have grounds to begin official negotiations to reschedule its debt payments. This reaction came after preliminary consultations between the International Monetary Fund and the Paris Club about Ukraine's foreign debt service strategy for next year. The final document of those consultations says that “in case Ukraine tries to reschedule debts to official creditors, we will have to prepare a respective program to ensure a stable relationship” between the sizes of the debt and the balance of payments.

Addressing Verkhovna Rada on the “debt question” October 12, Finance Minister Ihor Mitiukov said that the juridical conditions of foreign loans do not allow his ministry to restructure the 2000 debt without declaring default. From this flows the conclusion that if the post-election regime remains within the framework of “the juridical conditions of foreign loans” and does not publicly recognize itself as bankrupt, all of us must be prepared to pay the bills it has inherited, irrespective of whether or not there will be economic growth.