The IMF considers that the budget depends on the tax rates and the Ukrainian directors — that it depends on the speed of capital turnover

On June 21 the International Monetary Fund strongly objected to approving the so-called little Tax Code. Recall that the draft code worked out by the parliamentary financial committee envisions that the VAT be lowered from 20% to 17%, and the enterprise income tax — from 30% to 25%. In addition, there is a proposition to impose a tax on the incomes of the physical persons by only two rates, 10% and 13%. “The tax code does not provide compensation to avoid significant budget losses,” Julian Berengaut, head of the IMF mission in Ukraine, stated at a meeting with Verkhovna Rada Speaker Ivan Pliushch. According to the fund’s estimates, budget losses after approving the code could total approximately 7,000,000 hryvnias. If this happens, further loans to Ukraine by the IMF could encounter complications, said Mr. Berengaut.

Let us remind the reader that last week Ukrainian Premier Anatoly Kinakh spoke in support of immediate approval of the little Tax Code. He turned to the deputies with a request to uphold the relevant law before the end of the current session, that is, before July 13. “We are prepared to cooperate with the parliament every day to solve the problem as soon as possible,” says Mr. Kinakh, and to all appearances the IMF stand will be a very unpleasant surprise for him. The idea of working out the 2002 state budget on a new tax basis was also supported by President Leonid Kuchma. “I am for the reduction of all taxes,” he stated at the last council on budget.

Now the political leadership will have to do everything possible to persuade the main government creditors of the need for tax reform. The IMF has no information on the scale of the shadow economy in our country. And it seems that the government is not very good in providing it. Perhaps this is the reason for the obviously erroneous analysis conducted by the IMF. In our country mathematics can be only an auxiliary instrument for economic calculations. Logic is what matters. The directors of the biggest Ukrainian enterprises are convinced that after reducing taxes, budget income will significantly increase. The reason for this paradox is quite simple: everybody wants to work on a legal basis but cannot do so because of such high taxes. As soon as they are diminished, the number of those willing to work legally will multiply.