Tetiana Ostrikova apologetically said she had good reason for arriving an hour late to a Kyiv Post interview. She was in long discussions about tax reform in parliament.
She is the co-author of a bill that some critics have called too “radical” and “populist,” a rival and – critics say – irresponsible counter to Finance Minister Natalie Jaresko’s tax and budget plans.
Many lawmakers rebuked Jaresko’s plan during a parliamentary session on Dec. 17, although speaker Volodymyr Groysman said parliament will try to find a compromise next week.
Jaresko’s bill has the backing of the International Monetary Fund, the nation’s chief financier and whose lending program has kept Ukraine from going broke.
Ostrikova’s version is imperiling Ukraine’s prospects of unlocking further lending – $1.7 billion from the IMF and $2.3 billion from other Western countries and institutions, according to critics.
The IMF might, indeed, cancel its lending program to Ukraine altogether.
Ostrikova is defiant, however.
She said Jaresko’s tax plan will increase the nation’s shadow economy, which is about 40 percent of the nation’s gross domestic product.
Ostrikova also criticized the IMF, saying the lender only provides superficial analysis that ignores the harmful effects of Jaresko’s plan.
Jaresko, however, has countered that critics with vested interests are spreading disinformation. She has said that an IMF-compliant budget is essential to keeping further lending and, hence, macroeconomic stability.
According to the IMF, the rival parliament plan creates an $8.7 billion deficit, or three times higher than the Finance Ministry’s proposal, swelling the deficit.
Ostrikova said that’s not true.
The IMF’s main message to Ostrikova is to implement anti-corruption reform in the fiscal services administration, she said. Only after removing privileges should the Finance Ministry lower tax rates, she said.
She is convinced that Ukraine’s IMF representative Jerome Vacher “didn’t read in details the tax code of Jaresko,” Ostrikova said. She doesn’t believe that the IMF read the 700-page text proposed by the Finance Ministry. “I think that no one translated it into English… no one presented anything to the IMF,” she said.
But the IMF said that it has been closely involved in the Finance Ministry’s proposal.
“Following significant work at a technical level, a draft budget and supporting tax legislation were submitted to Parliament on Dec. 11,” David Lipton, first deputy managing director of the IMF, said in a press release on Dec. 18. “Approval of a budget that deviates from program objectives for 2016 and the medium-term will interrupt the program and inevitably disrupt the associated international financing.”
Ostrikova is in the Samopomich Party, which right after last year’s EuroMaidan Revolution was viewed as a pro-Western, progressive party. That assessment came into question after the party voted against gay rights and kicked out member of parliament Hanna Hopko, considered one of Ukraine’s strongest reformers.
If Jaresko’s compromise package goes through, “corruption factors will be worsened,” Ostrikova said. She said the bill lowers the social security tax rate, but at the same time puts more pressure on businesses.
“Our position is that we can’t worsen… the situation for Ukrainian businesses compared with what the situation is like during this year,” Ostrikova said.
More critically, according to Ostrikova, who co-authored parliament’s version with lawmaker Nina Yuzhanina, is that the compromise bill doesn’t address adminstrative issues. Samopomich “had a list of requirements…and they are all about the administration of taxation and not about the reduction of tax rates,” Ostrikova said.
Ostrikova said that the Finance Ministry, for instance, did not propose a deadline period for when the value-added tax should be refunded to a company. Samopomich proposes a 60-day period.
Ostrikova also doesn’t find it necessary for Ukraine’s four main tax categories – value-added tax, social security, corporate income and personal income taxes – to be the same. This is what Jaresko had initially proposed.
Ostrikova’s alternative is to introduce a tax on distributed profits, which would tax dividends and include taxes on transfer pricing, offshore operations and non-profit organizations.
“With this switch to the tax on distributed profits we close all of the loopholes of the schemes of money laundering that are used today,” Ostrikova said.
She said that the Finance Ministry took too long to develop a tax bill, so parliament drafted its own version.
“We should have voted for the proposed package by Jaresko by July 1,” Ostrikova said. “How could we have done this if it was registered in the Rada on Dec. 11?”
Instead, she proposes to start 2016 working on a new reform package “in a completely different direction” than what was proposed by the Finance Ministry.
