Market “square”

Today local taxes and feees are like rockets ready for launching. Soon they may spread to everything except smoke and breathing. Recently, on the invitation of the Parliamentary Committee on Finances and Banking, the public and interested individuals - heads of local councils - took part in a discussion of local tax, or budget prospects, to be more exact.

In their opinion, today only 1.5 percent of local budgets derive from such sources, while in neighboring Poland the figure is 38 percent. The state is aware of this and realizes the difficulties facing local authorities, reassured MP Vitalii Khomutynnyk, author of a corresponding draft law. But, he adds, municipalities will not gain complete freedom in this question.

The draft law proposes that local councils rely on the list of permissible taxes and duties, clearly defined by lawmakers. The discussants did not reach an agreement “unanimously and on the first try.” The fiercest battles erupted around the so-called tax on a separate market outlet. The current market fee accounts for 60 percent of local fees and reaches nearly 300 million in the entire country.

In Khomutynnyk’s opinion, even these funds are not real and, most importantly, far from complete. The system of administering this local tax has many drawbacks resulting in non-receipt of funds and endless tax audits. According to the author of the draft law, the new administration practice will be based on a scheme for taxing the so-called trading location (area: one square meter). Local government bodies will be allowed to adjust the tax rate within 0.25-2.5 percent (according to preliminary calculations, ranging from one to ten hryvnias). They promise to determine the tax rate fairly and effectively by taking into account the market’s location, demand, customer activity, and density of sales outlets.

However, such a mechanism does not satisfy all entrepreneurs. Parliamentarian Ksenia Liapina, former head of the Council of Entrepreneurs at the Cabinet of Ministers, calls the term “sales outlet” nonsense. When an entrepreneur purchases a trade license, he or she automatically pays for the outlet. The problem is, according to Liapina, that the proposed changes are initially based only “on the need to collect money.” She says it makes sense to continue this discussion only on condition that efforts are made to relieve entrepreneurs’ tax burden. “We must understand: either we opt for increasing the tax burden and try to shear the sheep a third time, or we carry out a reasonable redistribution of funds that go to the state and local budgets. There is no third option,” she says.

Petro Poroshenko, chairman of the Parliamentary Tax Committee, agrees with his colleague, although he does not support accusations concerning the unlawfulness of the “square outlet.” He explains, “Owners of kiosks and owners of jewelry shops cannot pay the same rent for their sales outlets.” He regards Liapina’s statement that “incursions against million- strong small businesses” will eventually lead to shrinking payments to the budget as groundless and that the shadow economy possesses significant financial resources that can and must be used to gentrify cities.

The discussions also broached the municipal tax. Khomutynnyk is confident that raising it will bring nothing but additional financial pressure on the Labor Fund. “It is possible to avoid a monetary increase of the tax by extending its monetary share to the cost of products sold in a city,” suggests Vasyl Pitsyk, executive director of the Association of Ukrainian Cities. He says that such a system is successfully working in Canada. Pitsyk also recommends taking advantage of Austria’s experience of organizing parking (parking permits may be bought for a day, week, or month).

The draft law proposes to install automatic equipment for collecting parking fees. I wonder where the local authorities will find money for this - perhaps on credit. This is feasible but not always appropriate. Small towns have few problems with parking - there is no shortage of spots. You do not have to be an expert to understand that invested funds are fully repaid only in big cities.

Questions about the three mentioned taxes were accepted by most heads of local councils who were present at the discussion, but the proposal to pay fees for keeping dogs and using local symbols mostly caused astonishment.