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14 June, 2011

Taxes and Nothing Else

A contemporary state has a number of functions. Even in the most liberal form it must: a) protect its citizens; b) secure conditions for their life and development; c) guarantee their rights and freedoms.

It has agencies to address these issues: from the employment service to the fishing inspection and from the State Standard Committee to consulates abroad. All these agencies must serve one purpose – putting the citizen above all else. If you look at all the functions the Ukrainian state has to perform, the only thing it is doing now with any success is collecting taxes. Taxation is the only area where an attempt at systemic reform has been made, and it suffered such a devastating exemplary failure that it naturally cast doubt on the current government’s ability for systemic action.

However, the government itself has the exact opposite view to its tax reform. Several weeks ago, the chair of a specialized VR committee boasted before a TV camera that Ukrainian tax officials collected 42% more taxes in the first four months of 2011 than last year. He implied that this was thanks to the new Tax Code. The code, my foot! The code has nothing to do with it – neither the previous one, nor the current one, nor the amended version allegedly registered and ready to be voted on. The code is a law, while what matters in Ukraine is not law, but how it is enforced. And this practice is such that a real tax official doesn’t give a damn about the Tax Code just like the investigators and judges in the Yuriy Lutsenko case could not care less about the Constitution.

A relative of mine owns a small metal processing plant in the Donbas. What he produces is not high-tech stuff, but it is not just re-bar, either. What is important here is that all of his products are exported to Germany. Considering the strict EU standards and the even greater bias toward our business and technology, whether it’s justified or not, his conquest of the German market is a small exploit and his experience is worthy of being shared across the country. As an exporter, his company has every legal reason to receive VAT compensation. His records are clean. No one is hiding anything. But the local tax police administration told him bluntly and without the sentiment peculiar to the capital city: “Cross VAT off your report.” “But this is my money. The state owes it to me according to the law!” “I tell you, cross it out. Or you will suffer for it.”

This conversation took place precisely at the time when the State Tax Service solemnly reported that the VAT would be paid back automatically – without the undesirable interference of the subjective factor and via a special computer program. Such was the demand of the IMF. The system worked like a clock: out of the 2,000 companies from across the country which applied for compensation, the tax reimbursement was granted to … just 32. I now see why. I started calling my acquaintances that own businesses and, hence have fresh impressions. Their stories were similar as copies that come out of a photocopier. The story is as follows. A business owner brings his report to the tax police and is told: “That’s too little.” “But I have my calculations, the tariffs. After all, there’s the Code!” “Forget it. Just put a bigger figure in there.”

What can a tax inspector do? He was given orders, a plan. In short, this is Azarov-style management.

The irony of this specific situation with my relative in the Donbas is that he sympathized with the Party of Regions at one point and even made donations, whether voluntary or “forced voluntary,” I don’t know. Now he feels twice deceived: How could “my” party have tricked me?

I recently heard a joke: people in Donetsk are afraid to go out into the street for fear of being snatched and dispatched to Kyiv to be made managers there. Now the “government of people from Donetsk” is a myth we need to dispel as soon as possible. The Party of Regions does not represent the regions or even one specific region. It’s a dictatorship of a small group of insiders. It is true that this often includes people based on regional affinity, but to apply the generalized label “people from Donetsk” means overlooking this regime’s hostility toward all of Ukraine, from Luhansk to Uzghorod.

Another myth is the “vertical of power.” Against the backdrop of languid, lazy and perhaps effeminate-looking representatives of the Orange camp, the current leaders were initially perceived by some (though not by me) to be tough guys who know how to work. It seemed that they would put the country in order. Let them have a piece of the national pie for themselves if only they can make the mechanism work. No way! The mechanism is set up so that while it still lets some specific instructions pass, it cannot force individual units and parts perform uncharacteristic functions. On Monday, the premier promised the president that the “work to deregulate the national economy” would be completed by the end of the year – in the sense that it would be easier to do business. We can already see how the “ban on checks of small businesses” is really working.

We can only hope that Ukraine will still be alive by the end of the year.


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