Leading Expert

Jaba Ebanoyidze: Business Is Frustrated And Doesn’t Believe In Success of Reforms

If entrepreneurs are continuously “milked” and continue evading taxes, there is no sense in these reforms. At the tenth meeting of the Council of Reforms two concepts of the tax reform were presented, by the Ministry of Finance and representatives of the civil society, of which the Council is supposed to theoretically glue a single project for the future submission to the Parliament, Jaba Ebanoyidze, the former Deputy Minister of Justice and former Head of the Revenue Service of Georgia, an expert of the International Center for Reforms in Ukraine, writes in his blog on the Novoye Vryemya.

This is the third attempt in a year and a half to reform the tax system, and, frankly speaking, it seems to me as far from success as the previous two.

What is the main problem of these concepts? Firstly, the fact that they still remain concepts. Just recently I was at a forum on the tax reform, and I was pursued by a strong sense of deja vu. All this talk about rates and reflections about the ideal tax system for Ukraine, I have heard from almost the same people at a similar forum a year ago.

There is no ideal tax system in any country and never will be. Each one has its characteristics and its priorities.

This statement, in turn, gives rise to at least two important questions: what specific objectives does the Ukrainian tax reform pursue, and what are the main problems of the existing system? Without answers to these questions thinking about the tax reform does not make sense, and is, by and large, reduced to speculative conclusions about how to turn the “bad” tax system into the “good” one.

In my opinion, it is a question about the problems, the diagnosis of the existing system that is the most important now and, unfortunately, it is hardly ever raised by the expert community. This is important because, without realizing the key issues, we risk to move them to the new “good” system, infecting it with old viruses.

That is why talks about the tax reform should begin not with the rates of VAT and the SCC, but with the institutional component of the reform, with powers of tax and law enforcement agencies. Herein lies a very important point: the law enforcement agencies should not engage in economic affairs and implement the financial control. It should be done by the financial police only.

In Georgia, after the Rose Revolution, it was one of the first changes. In Ukraine, one year and a half after the Maidan, the decision, unfortunately, is still pending. Until now, despite the abolition of the general supervision, the Prosecutor’s Office is creating a lot of pressure. The Ministry of Internal Affairs continues to influence. But the biggest pressure on business is exercised by the SSU.

In private conversations businessmen, especially importers, say that 80% of the problems are created by the SSU. Everyone knows that behind this pressure there is no ephemeral public interest. This is elementary corruption, feudal collection of tribute. Unfortunately, most entrepreneurs are silent, do not want to unite and fight this problem together. But it is also possible understandable: for a capitalist if a problem is solved with money, it is not a problem, but costs that are simply laid in the price of goods or services.

Business is frustrated and does not believe in the success of reforms. It continues paying tribute, and it is obvious that after the payment of the tribute itself, it is not eager to pay taxes.

Thus, the tax reform can not be reduced to mere changes in the tax code. Its scope is much broader, and there are a lot more pitfalls. In the end, whatever the rates are, if entrepreneurs are continue to be “milked”, and they, in turn, continue to evade taxes, there is no sense in such reforms.

The progress of the tax reform clearly does not satisfy medium and small businesses – the main driving force of the Maidan. The Government looks tired, having frustrated voters and disappointed in itself. In such circumstances, no one will start a really serious reform. This means that Ukrainians should expect real changes in the system from the new Government. But not just wait passively: business should unite and express its concerns and fears, the expert community should analyze the state of affairs thoroughly and offer real solutions. Frankly and in the atmosphere of trust. It is like at the psychologist’s: the first and necessary step to solving the problem is recognizing and announcing it.