In 25 years?
The Ministry of the Economy has drawn up in cooperation with a group of scholars, a government program to bring Ukraine’s economy out of the shadows. The program is essentially a memorandum of intent by the Cabinet of Ministers on reducing the shadow economy and create a favorable economic environment for legal business. The document has been discussed by the government’s economic development committee and is now open to public debate.
The program authors say that the negative phenomena in the economy have been mainly caused by the fact that economic entities conceal their incomes from official accounting. According to Antonina BAZYLIUK, department chair at the Ministry of Economics Research Institute, the trouble is that the current legislative norms actually encourage this kind of thing: “There are entirely legal mechanisms of amassing shadow incomes.” Under the existing tax pattern, enterprises find it unprofitable to work in the open: according to researchers, in 1999 enterprises had to pay as budget revenues and social fund fees over half the revenue they earned, while in Poland direct taxes on revenues are 10-12%).
The program lays emphasis on rejecting coercive methods of dealing with the shadow sector and employing economic levers, thus creating favorable conditions for business development. This entails a whole range of measures. In the opinion of Ms. Bazyliuk, an important role here has been assigned to the tax on expenditures, for the shadow economy has its sources precisely in the expenditure-related part of prices. The introduction of this tax, Ms. Bazyliuk believes, will make entrepreneurs interested in cutting production costs, which cannot be achieved by a mechanistic reduction of the existing tax rates.
Deshadowization of the economy, thinks Yuri SAYENKO, Doctor of Economics and Sociology, is closely connected with the deshadowization of consciousness: “we have to break the Soviet stereotype of trying to get rid of rich people and take a civil position: the more rich people pay taxes, the richer the state and its citizens become.”
The program’s developers hope that if they enlist political and public support they will be able to eliminate the factors that promoted such a widespread shadow economy. On the other hand, according to Ihor Shumylo, Deputy Economy Minister, one should not expect an early effect because this is a lengthy process. This is why officials are making rather cautious forecasts for 2000- 2002: the existing shadow economic sector will diminish at a 2% average annual rate. Taking into account that the shadow sector accounts for an estimated 50-60% of the economy, it is quite easy to calculate how many years full legalization will take at this pace.
