“Neither the current state, nor the rate or the trends of development of small business can be regarded as satisfactory,” “this country has created a powerful bureaucratic mechanism to counteract small business,” “the question is that most bureaucrats overtly parasitically feed on small and medium business,” President Leonid Kuchma said on July 15. He put special emphasis on the problem of taxes. “I will not sign the Tax Code if it envisions mounting tax pressure on small and medium business,” the head of state told the All-Ukrainian Conference of Small and Medium Business. The government’s proposed Tax Code drafted by the Ministry of Finance and Tax Administration, already submitted to Verkhovna Rada for approval, actually calls for canceling the single tax. The draft proposes, among other things, lifting VAT exemption for payers of the single tax. Tax Administration Chairman Mykola Azarov has said that by abolishing the exemption the government is trying to make up for the losses the budget might incur following the reduction of basic tax rates. But, as is now clear, not only small businessmen but also the president look with dismay on this version of a tax revolution. “I support the idea of abolishing the exemption. But there have to be exceptions to every rule. There is precisely such an exception in this case,” he says.
It will be recalled that entrepreneurs earning under a million hryvnias a year were originally exempt from all duties and were supposed only to pay a maximum UAH 200 monthly tax, with downward revision permitted by decision of the local authorities with respect to certain businesses. Some time later, small business was forced to pay Pension Fund fees. Now the Ministry of Finance plans to force payers of the single tax to pay VAT starting next year. “If they also demand that we pay the value-added tax, what will be left? This means there will be no support,” thinks Ksenia Liapina, chairperson of the Expert Coordination Center of Entrepreneurs’ Associations. In her opinion, the exemption for small businesses has already lost much of its sense because local authorities are constantly imposing various fees, while it is almost impossible to do business without bribing government officials.
Volker Renner, president of the Microfinancial Bank, an entity with 100% foreign capital, announced that when he was launching regional subsidiaries, he encountered demands for bribes in the most varied forms. “Sometimes the question was of charitable contributions, repairs of the heating system in the buildings where we rented offices, and sometimes the demand was that we pay spot cash,” Mr. Renner admitted, still refusing to reveal the names of specific officials. He also noted that it becomes unprofitable to both give and take out loans if all the legally mandatory loan issuance procedures are to be followed. In particular, serious doubts have been raised by the legally enshrined mandatory procedure of independent assessment of collateral and loan insurance, for, in the long run, the issue is one of the private relationships between the bank and the borrower, which in no way affect state interests.
“The impression is that the law simply allows assessors and insurers to cash in, which only boosts loan costs. In reality, we can decide by ourselves whether or not to insure the loan,” the Microfinancial Bank president said.
After hearing these revelations, President Kuchma admitted he was ashamed of this country and its bureaucrats. He immediately announced he “will fire department heads who undermine small and medium business.” Although the audience applauded such promises, in private conversation many of those present noted bitterly that no bureaucrat in this country has ever been fired “for failure to comply with the presidential decree on supporting small and medium business.” Vyacheslav Kredisov, chairman of the New Formation coordination association of entrepreneurs, suggested that Mr. Kuchma apply this provision to dismiss several officials, then, in his opinion, entrepreneurs will get a fairer deal from the rest.
The State Committee for Developing Entrepreneurial Activity has drawn up and sent to the Prosecutor General’s Office and SBU a list of more than 500 bureaucrats who force businessmen to give bribes and impose unnecessary duties on them. But, as committee chair Oleksandra Kuzhel said on July 15, she never received any real reaction to this list from law enforcement. On the other hand, Ms. Kuzhel thinks that the problem of corruption and administrative pressure could recede into the background if we lose the battle to keep the single tax intact. Although its payers exceeded planned budget revenue targets by six times, it is quite possible that this tax will be abolished. Finance Minister Ihor Yushko and publican-in-chief Mykola Azarov, unfortunately, refrained from sharing their views with the all- Ukrainian meeting. Quite unexpectedly, Ms. Kuzhel stood up for both of them, suggesting that “certain other forces” are at work. Thus far nobody knows what forces she meant. Under old Ukrainian tradition, struggle will be waged against the unknown and unnamed enemy, in this case labeled bureaucracy. As it was revealed at the meeting, that the Ministry of Finance failed to coordinate the tax reform bill’s text with any entrepreneurial association. All of the latter received the draft when the documents had already been submitted to parliament. With all this in view, it will be quite difficult to fulfill the instruction the president gave on July 15 that the government ensure growth in the number of small businesses by 100,000 a year and the creation of an additional one million jobs.
