Algirdas Semeta can’t declare victory yet in improving Ukraine’s business climate, but he is racking up victories.
The Lithuanian Semeta has for two years been Ukraine’s business ombudsman, directing an internationally financed and state-endorsed team that resolves disputes between government and the private sector.
Semeta has recovered nearly Hr 6 billion ($220 million) from the government on behalf of aggrieved businesses in 2016 alone, according to a report released April 6.
But there are limitations, given the extent of Ukraine’s endemic corruption and his mainly advisory powers. In the latest report, covering 2016, it comes as no surprise that almost half of the 868 complaints received were about tax issues.
“Our recommendations should also lead to systemic changes within the (tax) service,” Semeta said, adding that Ukrainian authorities “mostly address our recommendations on a case-by-case basis.”
Semeta wants to see the office go deeper in helping government officials act in ways that trigger fewer complaints. Officials, he said, need to put “more emphasis on the implementation of our systemic recommendations.”.
Almost 8 in 10 complaints come from Ukrainain businesses rather than foreign-owned ones.
The business ombudsman council is funded by a consortium of 11 countries through a European Bank of Reconstruction and Development-managed account, to the tune of TK annually. It employs 23 people in its Kyiv office with an annual budget of $1.6 million.
Recalcitrant officials
Ihor Chereshynskyi, an Odesa candy importer, is among those who sought help from Semeta. Chereshynskyi said he was assessed an extra Hr 10,000 ($370) in tax payments that he didn’t owe.
“It’s not about the amount of money, it was the principle of it,” Chereshynskyi told the Kyiv Post, noting that due to the devaluation of the hryvnia, the amount he was owed changed from $1,300 to $370.
Ukraine’s business ombudsman received 868 complaints in 2016, a 33 percent increase from 2015.
Chereshynskyi spent three years in court fighting the tax authority over the issue before he filed a complaint with the ombudsman. The team resolved the issue and got his money returned within a week, Chereshynskyi said.
The candy importer was pleased, but also wants deeper results.
“The system works so that whoever made the decision is not punished,” he said,. He said he wanted tax officials who took the money to be fired “to set a precedent,” but were not successful.
Semeta is nonetheless satisified that most of his recommendations are being implemented by government, while more businesspeople are turning to his team for help.
The office has also signed memoranda of cooperation with five separate Ukrainian state agencies over the past year: the Ministry of the Environment and Natural Resources, the Kyiv City State Administration, the National Police, the National Agency for the Prevention of Corruption, and the National Anti-Corruption Bureau, or NABU.
Semeta said that in cases where oligarchs or other private businesspeople appear to be manipulating government agencies to pressure rival businesses, he sends the cases to the NABU. He said that there were around 10 such cases, calling some of them a “work in progress.”
Political football
Much of the ombudsman’s work is generated by complaints concerning the State Fiscal Service. The report said that 49 percent of complaints received were tax releated.
“We get some complaints that we think we should not get,” Semeta said, adding that VAT refunds and the improper use of the electronic tax administration rank near the top of complaints from the business community. From 2015 to 2016, the amount of fiscal service-related complaints more than doubled, from 206 in 2015 to 426 in 2016.
“I think if the tax authorities acted properly, such complaints would not come to us,” he added.
The State Fiscal Service has been a political football, with different political factions jockeying for control over the institution as the Western business community and foreign lenders call for it to be dismantled and rebuilt into an entirely new service. Some want tax collection split from customs.
And many people believe the recent establishment of an online VAT registry will increase transparency and reduce corruption in this area.
Ukraine’s business ombudsman received 868 complaints in 2016, a 33 percent increase from 2015.
Much of the criticism of the organization has focused on its recently deposed chief, Roman Nasirov, who is currently under investigation by the NABU for allegedly giving former parliamentarian Oleksandr Onyshchenko illegal tax exemptions. He has been removed as the Finance Ministry seeks to restore its control over the service.
Semeta said that he served on a selection committee for the tax chiefin 2015.
“I voted for a different person,” the ombudsman said, grinning.
But Semeta noted that the State Fiscal Service complied with most of the ombudsman’s recommendations.
“I think that (Nasirov) sent a signal through the system so that actually authorities at the local level, the regional level, have to really carefully address the issues that we submit,” Semeta said.
Nasirov lauded the business ombudsman in a December interview with the Kyiv Post. When asked why there were near-constant complaints against his office, Nasirov said, “you need to talk to the business ombudsmen to understand that we resolved 80 to 85 percent of those complaints that they received.”
But Semeta said that while Nasirov had resolved issues on a case-by-case basis, there were few systemic shifts. “They could do much better in systemically changing the office” to improve accountability, he said.
Roman Nasirov, chief of Ukraine’s State Fiscal Service, sits during a hearing at the Kyiv Court of Appeal on March 13 as a soldier stands guard in the foreground. (Volodymyr Petrov)
Local offices
More complaints are coming from municipalities, a shift that Semeta calls a “side effect of decentralization.”
“As local authorities get more and more powers, and if those powers are not properly used, that creates problems for businesses, and businesses have started to complain more about the activities of local authorities,” he said. He added: “In each region which I visit, the first question is, ‘when you will create a local office?’”
Semeta said that the organization got its latest funding approved three weeks ago. It does not include funding for regional offices.
However, the ombudsman’s work will be extended for another three years, with funding to hire more investigators.
While the business ombudsman taks up the need for transparency, especially in Ukraine’s public sector, Semeta refuses to say how much he and his staff are paid.
Semeta, who served as Lithuania’s finance minister from 1997 to 1999 and rom 2008 to 2009, said that when he first arrived, Ukraine reminded him of Lithuania in the 1990s. He added that in spite of impressive achievements, more work needs to be done – and faster.
“That explains why the population is not extremely happy about the state of reforms,” Semeta said. “But for me the most important thing is that the direction doesn’t change.”
