The just-published report of the State Tax Administration of Ukraine (DPA) seems to be its first response to the Auditing Chamber’s accusation of distorting data on the implementation of the 2005 state budget. It will be recalled that chairman of the Auditing Chamber Valentyn Symonenko questioned the Ministry of Finance’s claim that budget revenue targets had been met by 110 percent.
The accusations of inflating data, which have been leveled against the Ministry of Finance, can be automatically redirected to the DPA because, according to Finance Minister Viktor Pynzenyk, the State Tax Administration’s share of budget revenues was 57 percent. DPA chairman Oleksandr Kyreyev has categorically refuted the accusations of state auditors. He says that the DPA contributed UAH 48.3 billion to the state treasury, up by 16 million from last year and a little over the planned budget figures. Pynzenyk named almost the same figure, 48.5 billion.
According to Kyreyev, in 2005 the state budget received UAH 23.8 billion of VAT revenues, up by UAH 7.1 billion, or 42.4 percent more than in 2004. VAT refunds also rose by 11.2 percent, or UAH 1.3 billion more than last year. The Ministry of Finance claims that the government has met the projected VAT refund targets: UAH 13.3 billion, i.e., 147.1 million over the plan, were returned to taxpayers. Kyreyev also confirmed these figures, in certain cases quoting somewhat smaller amounts. VAT arrears amount to only 600 million, and the courts are looking into these cases.
The situation with the profit tax and excise duties is also described as good. The only thing that does not fit in with the “successful tax collection list” is the tax on state- run business revenues, but even earlier experts noted that the figure projected in the budget was too high. So it is small wonder that the DPA failed to collect the planned 3.3 billion hryvnias.
However, in describing the successes of his agency, Kyreyev was rather self-critical. “I would be insincere if I said that I am proud of my agency, which has so many sores, wounds, and ulcers. I am proud of only the present changes,” he said. In his opinion, the changes that brought about success were a mirror reflection of what Pynzenyk said earlier. In the view of both officials, what helped the DPA work successfully was a dialogue with taxpayers, the thwarting of corruption schemes, and the struggle against illegal incomes and the DPA’s own offenders (253 cases were launched, 315 police reports were drawn up, and many individuals were fired or reprimanded). The DPA chief says that 60,000 enterprises have been inspected this year, 48,000 of which have committed certain violations. Although this figure exceeds last year’s, Kyreyev maintains there were fewer inspections this year. The truth is that during the reported period the DPA left “minor offenders” alone and got down to hunting bigger game. In other words, they switched their attention from small and medium to big businesses, almost all of which are suspected of wage machinations and other nefarious schemes.
Kyreyev emphasizes that his agency achieved these unheard-of successes in the past four months. Compared with the figures of the first eight months, tax collection increased by 26.1 percent and VAT refunding by 165.8 percent. What are the sources of these striking improvements if nothing special occurred in the State Tax Administration’s management during this period (barring the scandal with DPA Deputy Chairman Mykola Katerynchuk)? Perhaps, as Kyreyev gently hinted, the agency could not work at full capacity under Yulia Tymoshenko, and only the advent of Yuriy Yekhanurov created the necessary stimuli.
The State Tax Administration has even grander plans for this year. According to Kyreyev, the long- awaited tax reform will continue this year. But there will be no tax cuts, no matter how much our compatriots desire them. On the contrary, the DPA again suggested that the real estate tax be introduced legislatively. According to the State Statistics Committee of Ukraine, the financial result (before taxes) of Ukrainian businesses that are involved in real estate management and leasing was UAH 1.7 billion for the first 11 months of 2005. Moreover, 62.1 percent of these businesses made a profit, and their financial result reached UAH 2.8 billion. At the same time, the law on the 2006 state budget suspended in the current year Article 11 of the Law “On Taxing the Income of Natural Persons,” which calls for taxing real estate sales operations. Still, this year the DPA, although unable to collect taxes from real estate operators, will more actively combat tax evasion on the part of intermediaries, who are marking up housing prices. At the same time, the DPA chief cautioned that this should not adversely affect individuals who merely want to move to a larger place of residence. The DPA also plans to introduce electronic filing by taxpayers, which is supposed to minimize the human factor in dealing with tax inspectors. Also in the pipeline is a code of professional ethics aimed at encouraging the tax authorities to combat corruption and the shadow economy and, what is more, at cultivating taxmen who do not take bribes. The top officials at the DPA think that this will greatly benefit both the tax administration, as it will soften its negative image in the public eye, and the budget, as it will help tax inspectors obtain revenue. Incidentally, the revenue will have to be considerable: profit tax, VAT, and excise duty earnings are supposed to rise by 16.7, 34.3 and 28.1 percent, respectively.
The DPA believes it will cope with this. In any case, the January results seem to indicate as much. According to First Deputy Chairman Hryhoriy Operenko, preliminary, incomplete data show that tax earnings constituted 96 percent of the target, but taking into account the last day of January, it is expected that the January plan will be fulfilled. He also said that the DPA would meet the VAT refund January target, with payments reaching UAH 1.2 billion.
The tax people do not fear the prospect of a drop in industrial revenues and the respective tax in connection with the gas price hike. In Kyreyev’s view, one must first wait for the final price for enterprises and only then begin to assess their cost-effectiveness and budget allocations.
