On March 12 the State Tax Administration of Ukraine (STAU)’s session aroused serious concern in this country’s economic life. Addressing the session, STAU Chairman Yury Kravchenko said he would put up a struggle against tax liability minimization. “I want you to discuss this problem and analyze the situation in every detail. So this action, aimed at liquidating those who want to minimize and hope to embrace as many as 30,000 businesses. We’ll have to do tremendous work,” he said to his subordinates.
According to Mr. Kravchenko, the STAU has inspected 1600 businesses since the beginning of this year, 500 of which were found to be minimizing their tax liabilities. Viktor Zhvaliuk, STAU Deputy Chairman and Tax Police Chief, said these businesses had the negative value of their tax entities reduced by almost UAH 1 billion. Oleksandr Narbut, deputy chairman of the Union of Ukrainian Taxpayers, thus commented to The Day on the STAU’s initiative, “These words could mean something entirely different from what is usually meant by tax liability minimization. In all probability, the STAU chairman is worried about various patterns of tax evasion. As far as illegal operations are concerned, I only wish the STAU to do a high-skilled and successful professional job. But there also are quite lawful practices of minimizing taxation, and accordingly consultations can be provided to this effect by both national and foreign legal and auditing companies. As we know, this kind of services are offered by such universally known firms as Ernst and Young, Price Waterhouse Coopers, et al. The lawful management of costs is a very civilized way of making an enterprise more effective. The tax administration should support this globally recognized way of corporate management, for higher cost-effectiveness of companies brings additional tax revenues and dividends for the state and the population and allows the state to levy taxes on these incomes. If this statement is a signal to raise obstacles for the firms that render consulting or scheme-operation services in selling bonds, bills of exchange or other securities, this will cause nothing but concern in the economic community...”
Yet, STAU spokesman Yury Konstantinov tries to allay fears, “The STAU chairman is not against minimized taxation as part of the efforts to minimize business costs.” He meant the businesses that declare fake losses. It is in this sense that he used the term “minimization,” although this word has, as a rule, a different meaning. In this case, Mr. Kravchenko applied the term to those enterprises which — as the President of Ukraine has also pointed out — display phony losses to evade paying taxes. In other words, he meant tax evasion.”
All we have to do is wait and see how tax inspectors will interpret Mr. Kravchenko’s initiative when visiting this country’s enterprises.
