The 2008 budget: second try

Ukraine’s main financial document has been adopted. But the continuation of the budgetary soap opera is still ahead. This week the group tasked with introducing changes and additions to the 2008 state budget will start working. Representatives of business circles assured this reporter that they have their work cut out for them.

Tetiana Zatserkovna, head of the Council of Entrepreneurs and Employers of Ukraine, described three budget items that are markedly influencing the effectiveness of small-and medium-sized business. The first is connected with the Law of Ukraine “On the Main Principles of State Control in the Area of Economic Activities” (in force since Dec. 26, 2007). This document considerably reduces the number of business inspections. At a meeting with representatives of Ukrainian business President Yushchenko mentioned a few gloomy statistics: the number of inspections is sky-high (fire department and tax inspectors are in the lead here) but they are useless. So business people were hoping finally to rid themselves of excessive fiscal attention. But two days after the law was adopted, a line stating that the law cannot be applied to the taxman appeared in the budget draft. “Obviously, the great number of inspections is worsening business conditions,” says Zatserkovna. “The fewer inspections we have, the more time we get for producing services and manufacturing goods. The more services and goods are produced, the bigger the budgetary inflow.”

The second problem is connected with the budget regulation on planning a particular amount of a fine. “This does not and cannot exist in developed countries because it is sheer nonsense to plan violations for the next year,” the head of the Council of Entrepreneurs and Employers said indignantly. “As long as we plan penalties in the budget, there will be a conflict between business and controllers. The controllers will pressure businesses to fulfill the budget’s tasks.” Zatserkovna thinks that for a peaceful regulation of the situation the disputed regulation concerning fines may be left in the budget, but not as a pre-planned index.

Zatserkovna’s third comment is aimed at recommencing the practice of introducing changes to the tax legislation through the law on the budget. “The existing law on the taxation system specifies that any changes to the system may only be introduced through specific taxation laws. The state budget is not one,” she added.

Dmytro Vydolob, a member of the Public Collegium at the State Tax Administration, agrees with Zatserkovna’s comments but says that the new budget is not all that bad. He thinks that business circles are encouraged by the fact that the simplified system of taxation has been retained without any changes.

“The budget is generally positive with regard to the agricultural industrial complex,” says Volodymyr Lapa, an expert at the Ukrainian Agricultural Business Club. For instance, the budget continues to finance agro-industrial programs (compensation of interest rates) that were initiated earlier. Direct support for agricultural producers has also been retained. On top of that, existing modes of tax support for VAT accumulation will enable farmers to keep about UAH five or six billion at their own disposal.

Viktor Khmiliovsky, the president of the Union of Lease Holders and Entrepreneurs of Ukraine, suggests improving the budget by establishing transparent leasing relations. The problem is that last year a new budget regulation establishing leasing relations through organized bids was introduced. Owing to its presence in the new 2008 budget, new auctions have to be held, with the one who pays more coming out the winner. “Dishonest bureaucrats who control public property now have an absolutely free hand. This is how society and business obtained a legal basis not for their development but for the corruption boom,” he claims. The most notorious tenders have taken place in the Shevchenkivsky and Obolon districts of Ukraine’s capital.

The working group that will be looking for gaps in the hastily adopted budget has to pay attention to this and other recommendations, which the business community is ready to present.