Small business owners and ordinary citizens are feeling squeezed by the government, and are starting to revolt.
This spring could be hotter than most, no matter what the weather.
Economic hardships, paralyzing red tape and desperate government attempts to squeeze more out of taxpayers are fueling protests across the nation.
From pharmacists to drivers, from the Crimea to Lviv, separately and together, Ukrainian entrepreneurs are making their voices heard.
Discontent appears to be reaching a boiling point. A new poll by the Kyiv International Institute of Sociology finds that 51 percent of citizens are in the mood for protest.
Small and medium-sized entrepreneurs say government is increasing the burden on them in many ways, including heavier taxes and regulations. At stake, they say, is whether Ukraine will follow the path of many developed nations where small business forms the economic foundation. Small business owners feel that government, desperate for revenue, is taking steps that could kill their enteprises.
“The government is blatantly trying to cover its budget deficit at the expense of private entrepreneurs,” said Yaroslav Misyats, who heads the Party of Small- and Mid-Sized Business, a political organization that claims support from 100,000 entrepreneurs.
The government sees “huge tax increases” on business, including small entrepreneurs, as the only way to fill the budget and pay off its debt, Misyats added.
Right now, many business owners say their lives are lurching between crisis and fear, with falling profits and growing despair. At all levels of government, they battle tax collectors, state-owned monopolists and unruly regulators seeking payoffs. On top of that, many struggle to repay dollar-denominated loans. Individually, they have no influence on government. Collectively, they hope to be heard.
Who are they? And what do they want?
One of them is Regina Kucherenko, owner of three small kiosks at Taras Shevchenko metro station. Fresh fruit is sold at two of them; household chemical goods from the third. None of the enterprises is making money now, Kucherenko said.
“I am torn apart by attempts to survive financial hardships, fight bureaucracy and not to become a slave of [municipal] monopolists,” Kucherenko said. Combined with falling business, she said national and local government is “literally cutting off our oxygen with new regulations.”
The near-collapse of her modest trade has prompted Kucherenko to join up with a rebellious army of like-minded merchants. They conduct rallies. They’ve created rescue committees and support groups. The entrepreneurs want government officials at all levels to pay attention to their needs before they go broke.
“We [small- and mid-sized enterprises] are not dead yet. However, we all feel it’s getting close and don’t want to reach the point where nothing can be done,” Kucherenko said. “If government wants our assistance in filling up the budget, we are ready to compromise, but not to be coerced. We call for an open dialogue and not some shady decisions taken behind our back.”
By “shady decisions,” Regina includes actions by Kyiv Mayor Leonid Chernovetsky and Kyiv’s city administration. In November, the capital’s administration transffered authority of all “small architectural structures” – such as kiosks – to the little-known Kyiv Investment Agency (KIA), a government entity.
The agency cancelled all previously issued licenses for kiosks and other small structures. Then, businesses were forced to set up a new agreement with the investment agency.
Previously, fees and rent for the land had been capped at a monthly Hr 400. That all changed under the new proposal, which assesses crushing new costs. “Now the agreement will cost me about Hr 11, 000 plus Hr 2,500 more for further monthly rent,” Kucherenko said. “It is mere perdition.”
The fee hikes weren’t the worst part. Under the proposal, businesses would lose ownership of thier kiosks, which would become the property of the Kyiv Investment Agency during a specified contract period.
“This monopolist structure will be able to throw us on the street at any moment, then take us back demanding double price for our own kiosks, or find somebody more obedient,” Kucherenko added.
Roman Hladunyak, Kyiv Investment Agency director, told Delo newspaper that the properties are being taken away from their owners because of the need to prepare for the Union of European Football Association’s Euro 2012 soccer championship, which will be co-hosted by Ukraine and Poland.
“We need to replace old bus stop constructions in the center of Kyiv with more modern ones. That’s why the current investors will lose their property and will turn into tenants,” said Hladunyak.
Hladunyak said business owners do not have to deal with his agency if they can get their permissions and licenses elsewhere. But entrepreneurs said the agency is a government monopoly.
An estimated 10,000 entrepreneurs angered by Chernovetsky’s policies protested in front of the city administration on Feb. 12. The protests may have had an effect: The city administration canceled the kiosk decision and other decrees. However, the mayor had not signed the cancellation decree as of Feb. 25. So, the battle continues. Entrepreneurs say they have no intention to stopping and are planning new protests.
The arbitrariness of government is not the only obstacle in the lives of entrepreneurs such as Kucherenko. They live in constant fear of cancellation of a privileged “light” tax rate for small business. There are proposals for new taxes, including higher annual duties on owning a car and import duties on various goods. These taxes could turn into a crushing burden. “It will mean the collapse of small- and mid-sized business in Ukraine. Everybody realizes that,” Kucherenko says.
“With the crisis, taxes, salaries and other expenses, my net monthly profit is Hr 2,000-3,000. Is it possible to raise taxes?” asked Vitaliy Bohdanov, a private entrepreneur from Lviv. “If it goes this direction, I will be faced with this: Should I stick to a business that doesn’t make money or will it make more sense to register as unemployed at the labor ministry and live on state support?”
Bohdanov and his wife were one of many Lviv entrepreneurs who joined the protests to lobby against tax hikes.
The tax bill is being considered by parliament. At the same time, lawmakers failed to approve four draft laws on Feb. 19 that would reduce taxes for businesses.
Small- and mid-sized entrepreneurs believe they’ve been targeted by government not because they have the most money, or are the least-taxed, but because they are disorganized and lack political clout. Most political influence is wielded by representatives of Ukraine’s largest businesses, they say.
Misyats, head of the Party of Small and Mid-Sized Businesses, said government views his class of entrepreneurs as easy targets. “There are no entrepreneurs in power who will, for example, understand the consequence of [kiosks’] liquidation.”
A government body intended to help business prosper, called the State Committee on Regulatory Policy and Entrepreneurship, does next to nothing, business owners say.
Last month, 12 associations of entrepreneurs created the National Business Rescue Committee to lobby lawmakers. Its members seek tax holidays and a moratorium on changes affecting small-and mid-sized businesses.
“Even countries with much stronger small- and mid-sized business sectors made concessions to entrepreneurs and established tax holidays,” Kucherenko said. “We are not asking our government for much — just to let us make it through the crisis.”
And how will government survive without taxes? Misyats said government – which is expected to spend more than $30 billion this year on the national level – will have to shrink the state bureaucracy.
“The crisis has revealed many institutions, so-called appendices of the Soviet era, that don’t have any impact, like the Industrial Policy Ministry,” Misyats says.
Perhaps the most radical of demands by small business is the demand for banks to let borrowers suspend repayments of loans for one year.
“The banks will survive, as they made profits speculating on currency fluctuations,” Misyats said. “This will give time for entrepreneurs to catch a breath. In several years, we may have a strong small- and mid-sized business sector, which makes up not four percent of gross domestic product like it does now, but 30 percent and 40 percent, like in European countries.”
Yet banks say they, and Ukraine’s economy, simply won’t survive such a scenario. “[It would] lead to bankruptcy. Delay [of loans repayments] is possible in one scenario only — if government picks up the debts, like it did many other countries,” said Serhiy Shumylo, a spokesperson at the Ukrainian Association of Banks.
Vitaliy Apostlov, head of the Kyiv branch at the State Committee on Regulatory Policy and Entrepreneurship, said: “Ukraine has developed a system in which an entrepreneur is viewed as a milking cow.”
Misyats said that entrepreneurs face “boundless corruption, which keeps most of business in the shadows.” If the burden on business is removed, investment and business activity would prosper and, thus, pay more taxes.
“[But for now], it is much easier to bribe one institution and work illegally than to deal with all the bureaucracy. It simply takes too much effort,” Misyats added.
Business representatives say they rely neither on governmental support nor international loans. Nor do they want such favors.
Kucherenko said the struggle for small- and medium-sized business is a plight to save Ukraine’s future and its budding middle class.
“We are not asking for help. Just don’t impede our existence. We fear hasty regulations that create conditions that are impossible for us. Ukraine’s newly formed middle class will die in its infancy. We will turn into a country of homeless and oligarchs again,” Kucherenko added.
