The Ukrainian business circles are concerned. The Cabinet of Ministers is drafting a new Tax Code with the long-promised easing of tax pressure in secret. Recall that last November 28, the draft Tax Code passed its second hearing in parliament (244 yeas out of 415 registered votes). At about the same time, this seemingly constructive step was given a hostile reception by businesspeople outside the parliament. Many discussions about this so-called economic constitution showed that Ukrainian entrepreneurs, taught to take any changes in the national tax system with cautious distrust (even if they promise lower taxes), were not very off the mark: the Tax Code is imperfect and a number of its provisions run counter to the real interests of normal business.
Leaving aside the particulars and nuances, we would like to note the most important aspects. According to The Day’s experts, the Code which was supposed to put the national tax legislation in order and bring our economy out of shadows had some tricky points. In particular, parallel to the declared reduction in tax rates (from 40% to 25% on individual incomes, from 30% to 15% on dividends, reduction of the VAT, etc.), new kinds of taxes were introduced (a so-called school tax, for instance). Moreover, certain types of expenditures, earlier included by enterprises in their production process, would be regarded by tax authorities (if the Tax Code were adopted) separately from production costs, so that they would be taxed. The “simplified procedure of tax administration” would be no better: the proposed single tax did not include social payments. But everybody knows that in this country the number of taxes levied from enterprises is directly in proportion to the number of audits.
In a word, no one doubted the necessity to upgrade the draft code. In November the parliament directed its Finance and Banking Committee to amend the Tax Code and submit it to a third hearing by December 6. Also, taking into account its importance in filling the nation’s budget, it was to be considered by the Budget Committee. As People’s Deputy Serhiy Teriokhin told The Day, the lawmakers were supposed to tackle about 7,500 amendments. They decided to hold the third hearing by a special procedure: according to the then First Vice Speaker Viktor Medvedchuk, they were to reserve one or two days for it, to vote even on the proposals turned down by the government and the committee.
Time has shown that the incumbent lawmakers never managed to consider the Tax Code in its third reading. “The government, the State Tax Administration, and the deputies themselves have too many claims,” analysts concluded and the government started to “correct” the code. Finance Minister Ihor Yushko told The Day that his ministry would prepare proposals to be considered by the new parliament. At the time, it was premature to talk about it in more definite terms, the minister said.
“What if it’s too late?” entrepreneurs and experts argued on April 8. Again they were left outside the process of tax legislation. “The Tax Code is being finalized in deep secrecy,” says Ksenia Liapina, an expert with the Institute of Competitive Society. “We can only guess what it’s going to be like for our entrepreneurs. I think the taboo on the Tax Code is a sign of unpleasant changes in it.”
Ms. Liapina could be wrong, and our entrepreneurs are going to have a pleasant tax surprise. And The Day ran up against the same secrecy when it asked the Finance Ministry to comment on the tax reform, suggesting the opposite. Still, we managed to find out the following:
– the government is actively preparing its proposals on the Tax Code;
– it is quite possible that the proposals will soon be submitted to the new parliament; and
– the slogans that the public should be more actively involved in tax legislation have not been heeded (this can be seen at least from the ministry’s categorical refusal to make public the drafting process).
COMMENTARY
Kostiantyn STATNIKOV, Chief of the Economic Development and Entrepreneurship Department at the State Committee for Regulatory Policy and Entrepreneurship:
“The draft Tax Code that passed the second hearing was very far from entrepreneurs’ interests. As we know, the rules of the inquisition were written by the inquisitor himself. Naturally, it met with numerous objections. Now the document is again being finalized without public participation, although this time it’s being done by another ministry. By the way, even representatives of our committee are not admitted to the work. It looks like the voting on the second hearing was just a test of strength. Such a large document can’t be adopted so quickly. The Tax Code should have been adopted chapter by chapter, with all details discussed. Will the Finance Ministry take into account all the proposals? This is hard to say; too many corrections have been proposed, and a normal Tax Code would hurt the interests of too many officials. My guess is that the “corrected” code will turn up abruptly on the parliament’s agenda. I can imagine the shocked people’s deputies in the session hall. God help them make it out. But in all probability, the voting will be adjusted to the particular circumstances. Frankly, I don’t expect any improvements from the new Tax Code, the more so that our best gain (the prime minister and speaker agreed with the necessity of public control over the work on the document) has been reduced to zero. The ad hoc working committees had only two meetings (which I attended, incidentally), and when passions abated, they never gathered again. Work on the Tax Code goes on in the lobbies.”
