The full house at the Ukrainian House was a clear sign of how business circles responded to the invitation to attend the forum “Government and Business Are Partners” and exchange their views of various problems. This can also be done on the government’s Web site, where 248 elaborated proposals have been posted.
The forum targeted primarily foreign investors, who usually decide to act only when they see that a host country is creating a favorable business environment. Eloquent testimony to this aim was the attendance by all the top Ukrainian officials-President Viktor Yushchenko, Prime Minister Yulia Tymoshenko, and Parliamentary Speaker Arsenii Yatseniuk.
The head of the Ukrainian state was the first to offer his view of the real state of affairs in the business sector. President Yushchenko spoke about Ukraine’s significant economic achievements in 2007 and said that they may all be forfeited if the political debates and clashes continue. He then listed the usual series of economic imperatives: revise and simplify the system of issuing permits and licenses, scale back the number of controlling agencies, liberalize tax legislation, repay VAT refund arrears, and create a transparent and level playing field for all stakeholders. Addressing the businessmen, he asked them to engage in economic rather than political activity.
The government team received another order from the president, who called “maintaining the inflation rate within a one-digit range” a perfectly feasible task. The State Budget predicts a 9.6-percent inflation rate, the Ministry of the Economy-12.5-percent, and experts-an even higher one. Given these figures, the task set by the president appears to be not simply ambitious but reminiscent of the type of orders Cinderella received from her stepmother.
The chapter on taxation in the president’s address made the greatest impression and sparked the most heated discussions among the assembled businessmen.
Yushchenko said that budget receipts from taxes rose by 40 to 50 percent in each of the past three years, noting, however, that “it has not always been possible to obtain a carefully thought-out response owing to the lack of deep trust between the government and business.” How can this be rectified? “Help the government to reduce taxes today, but on condition that the tax revenue does not decrease,” said the president, who then suggested a way to accomplish this: “Legalization [of business] must become one of the main outcomes of this year. I am convinced that it is possible to find a way out of this situation provided the tax rate is reduced and the tax basis is expanded.”
In principle, business circles have nothing against this move, but the tax legislation has to be put in order first. “Ukraine does not have a clear law on taxation. Any taxation issue may be subject to VAT compensation. The legislation gives the green light to chaos and corruption. This should not happen, of course,” said Oleksandr Kyrsh, adviser to the head of the Kharkiv Oblast Administration. One businessman to whom the president gave the floor suggested incorporating a clause into the new Tax Code that would punish tax officials for damages caused by their failure to refund VAT in a timely manner. (The name of this businessman escaped the attention of the journalists who were following the discussion on television screens.)
As if in response to this proposal, the president reassured his listeners that 2008 will be the last year that Ukraine will work according to the current tax laws. His suggestion is for politicians and business representatives to work jointly on elaborating the text of a new code that can be passed by parliament.
Yushchenko does not like the fact that the issue of VAT refunds is being politicized. According to the president, in 2007 over 93.3 percent of compensations were paid out in Donetsk oblast, whereas a mere 50 percent and 56 percent were reimbursed in Kyiv and Lviv oblasts, respectively. A promise was made to sort out this problem at a meeting of the National Security and Defense Council. In general, the arrears in VAT payments accumulated by the previous tax administration team should not be a burden on entrepreneurs. “I want a full guarantee that the arrears will be paid off. I understand that this is difficult to accomplish all at once. Let us agree that we will take eight to nine months to strike this issue from the agenda,” the president told Serhii Buriak, the head of the State Tax Administration. Yushchenko also said that excessive tax inspections, which affected 54 percent of businesses in 2007, should be scaled back.
Arsenii Yatseniuk called VAT compensation “a long-standing and old tax story” and suggested dealing first with the laws that are already in force and then passing, changing, and amending them with suggestions proposed by businessmen.
In his turn, Buriak acknowledged that the problem of VAT arrears “is cooling down and demoralizing the competitive environment.” However, during informal talks in the corridor he said that 35 to 40 percent of [applications for] VAT refunds are questionable, and those that have been due for 60 days or more total 2.5 billion hryvnias. “The State Tax Administration will do everything it takes to pay off these arrears,” he said. In his opinion, the payment of VAT refunds may be automated with the help of an “electronic register and legislative changes, namely the introduction of the concept of usual price.” He rejected the accusations of excessive inspections: “I have different data. In 2007, 10 percent of all taxpayers were audited. Moreover, 70 percent of the inspections were actually cross-audits focused on VAT refunds.”
The president was satisfied with the outcome of the meeting: the government heard what business wants straight from the horse’s mouth. Tymoshenko, who mostly took notes during the forum, assured everyone that all the comments and suggestions will be considered. She said that in order to improve the dialogue with entrepreneurs, the government’s Web site now contains a special page where anyone can post their problems and offer solutions. Information about the final results will also be posted there.
