The previous version was severely criticized. Anyone in the government who started off praising the law as innovative, investment-oriented, progressive and modern, eventually hid in their offices, claiming that they have nothing to do with it.
The new government tax code has received many unflattering descriptions, including “tax imperialism,” “tax NKVD [secret police],” “tax terror,” and “tax assault force.”
In a recent conversation with a Lviv journalist, I was asked whether the tax code really is so bad, and whether anything can be done to improve it. The question is logical because the torrent of criticism it received looks politically motivated.
In response, I suggested that the journalist should evaluate the facts. Firstly, the tax code has 500 pages, and had more than 5,000 amendments suggested. That’s 10 per page, on average. Secondly, in three weeks alone, more than 700,000 signatures were collected against it.
Going back to the long-awaited government tax code draft, I would like to say that there is no such thing as the second draft. There is camouflage of the same very tax provisions from the first daft, which had been heavily criticized by the public. The government actually acknowledged that, out of 5,000 amendments, only 300 were taken into account.
The law the government is suggesting is worse than the current tax legislation, and fully preserves the ideology of tax imperialism. So, why approve it? Just to have the word “code” on the cover? Or for the government to be able to boast conducting “reform”? If their reform leads to worsening of business climate, it looks more like sabotage.
The new changes are often cosmetic, but it effectively destroys the simplified tax system. It reduces the maximum annual turnover Hr 500,000 to 300,000, allowing only microscopic businesses to pay a single tax. This type of businessman cannot have more than Hr 800 turnover per day. And this cash has to suffice to pay for stock, office, salaries and receive a profit.
Moreover, the law increases the single tax rate from Hr 200 to Hr 600. The local authorities will be able to set the tax rate within the Hr 200-600 band for those in the information technology sector, Internet providers, law, accounting and audit companies and a number of others. Other types of business activities will still be taxed at the current Hr 20-200 rate.
So, the government promised tax holidays for small businesses for five years. Instead, their taxes have tripled. I guess that the tax holidays mean that you close down your business, and take a holiday for five years, if you wish.
However, the government is suggesting to shrink the list of activities that can use the single tax system. So, the government promised tax holidays for small businesses for five years. Instead, their taxes have tripled. I guess that the tax holidays mean that you close down your business, and take a holiday for five years, if you wish.
The bill has no tax on real estate, a form of non-corrupt taxation which could strengthen local self-government and plug most of its financial holes. Obviously, the tax was not introduced because of the owners of residential and commercial properties want to pay nothing.
The draft tax code introduces a tourism duty. Why do it now, when the tourist industry in Ukraine is still at pre-historic level, and the government itself had recognized the problem by canceling hotel taxes?
The courts receive a right to decide on additional fines and sanctions against the taxpayer. Tax cases will also be moved from administrative to criminal courts.
It also seems that Ukraine has taken an obligation to increase its paper import by the year. The number of copies of documents required by the new tax code is unprecedented. It seems that the State Tax Administration and the Finance Ministry know nothing of electronic record-keeping.
Anything the tax inspections can do, the customs will be able to do as well because the new tax code makes it a “controlling” authority.
The tax inspectors receive the right to check the citizens’ expenses, and not only what is declared. But how the inspectors will figure out what exactly their subject has bought, and how one can prove they did not buy it, is unclear from the tax code.
There is a new provision introducing a tax holiday until 2016 for newly created companies with initial investment of more than Hr 5 million. For the first two years such companies will not pay any profit taxes, and for the next three years they will pay 0.25 percent, 0.5percent and 0.75 percent of the basic tax rate. But what about those businessmen who are not millionaires?
The transport tax for the cars with 6.5-liter engines is increased by Hr 5 per 100 cubic centimeters. That’s about Hr 1 per day per car. The owners of those custom-tuned auto monsters are probably weeping from gratefulness for the government’s generosity.
Tax inspectors are given plenty of room for arbitrary actions. The rules for tax inspections are established by the tax inspections themselves. There is no limit on the number and periodicity of document spot-checks. The tax inspectors are allowed to confiscate original documents.
Effectively, forceful takeovers of properties (known as raider attacks) are made easier through the mechanism of property seizures by the tax inspectors. Tax administrators are the ones who take decisions on property seizures.
Tax inspectors have no responsibilities. Tax inspectors have rights, while responsibilities are all ours.
There are clauses left in that allow the tax inspectors to use the so-called “indirect tax control methods” such as surveillance and control over the person’s expenses. Tax inspectors have the right to search just about any premises of any taxpayers.
The tax code is set above all other laws. If other laws give you the rights that are not mentioned in the tax code, you can forget about it.
The Party of Regions is promising to “correct” the imperfect law after its approval. But this idea is total profanity. There is no greater shock for business than ever-changing rules, which are already imperfect. It creates ever more opportunities for corruption and extortion.
The businesses and public were given a month to suggest their amendments. In the middle of the vacation season this sounds strange. But nevertheless, if the government is incapable of producing a good tax code, we have to find a way to do it ourselves. Hopefully, the majority’s opinion will be then taken into consideration.
Andriy Pyshiy is deputy head of the Front of Changes Party led by ex-Verkhovna Rada Speaker Arseniy Yatseniuk.
