The value added tax rate has not been lowered, making it the most shady one in Ukraine. A number of large domestic companies use various schemes to reduce losses incurred by VAT to a minimum; others resort to techniques allowing them to use VAT to make good money. Last year, VAT compensations to exporters had finally become a separate line of business meant for people with connections in the right places. They can tell you how to make a deal to leave the state indebted and will help you promptly receive compensations from the budget. Previously such fraudulent transactions were practiced by separate officials working for the tax authorities. At present, this loophole is actively used by high officials at the regional executive level, as evidenced by a series of scandals resulting from actions of protest by local councils against dubious VAT compensations paid from municipal budgets as ruled by courts of law.
The president of Ukraine set up a special commission to deal with the administration of the value added tax and its compensations due exporters. The fact that the commission is chaired by Tetiana Korniakova allows one to expect that this body will show a good performance. Ms. Korniakova is currently at the head of the coordinating committee against corruption and organized crime under the head of state. Previously, she handled the high- profile cases resulting in the dismissals of Crimean mayors and Vice Premier Kozachenko. That the newly established commission is fear-inspiring is obvious from a statement addressed to the constitutional court, signed by 56 people’s deputies, requesting that the coordinating committee against corruption and organized crime be recognized as illegitimate. This time Ms. Korniakova will deal with tax authorities to check the legality of VAT administration.
Meanwhile, President Kuchma initiated an expedited procedure to institute special VAT accounts. This, in his opinion, will lessen the tax’s semishadow image. The said accounts are to become effective as of April 1, not June 1. For many businesspeople April Fools’ Day will be anything but funny, as the mechanism of institution of VAT accounts is prepared on short notice. At present, VAT accounts are practiced only in Bulgaria, but the preparations, institution, and adjustments lasted two years, with businesses allowed to voluntarily adopt the new system of VAT payments. In Ukraine, the bureaucrats in charge expect to complete the legal paperwork in two weeks. Nevertheless, NBU head Serhiy Tihipko and First Vice Premier Mykola Azarov do not seem concerned over such tight schedule, meaning that the new bank accounts will be instituted in the immediate future.
Businessmen, bankers, and accountants await this with trepidation, having on more than one occasion witnessed and suffered from the unmatched “quality” of documents prepared by Ukrainian bureaucrats on such short notice. Likewise, there is a very slim chance of these documents being adjusted in the course of parliamentary deliberation. The cabinet’s lawyers obviously assume that VAT accounts can be introduced unaided by Verkhovna Rada, even though no such accounts are envisioned by the current law on the value added tax. The reason for all this haste is perhaps found in the devastatingly low VAT returns after two months this year; the said returns are twice lower than such budget payments. If the documents being prepared turn out inadequate, the large-scale offensive on the shadow VAT could meet with resistance from the businesspeople. This, in turn, might well result in the economy moving further into the shadow. In that case Tetiana Korniakova and her commission’s findings, to be submitted before June 1, may turn out belated, as by that time the shadow schemes will be working not to evade VAT, but to make payments using shadow cash.
