Legislators from pro-business factions introduce measure aimed at tax relief (06/17/01)

Legislators from pro-business factions introduce measure aimed at tax relief

by Yana Sedova
Special to The Ukrainian Weekly

KYIV - Lawmakers from two pro-business factions have introduced a bill that will give single-employee, small business owners a five-year tax exemption - the first such tax relief since serious tax reform efforts began two years ago.

With the long-awaited new tax code still not ready for the Verkhovna Rada's review and not expected to be passed this year, lawmakers are looking for other ways to relieve the large tax burden that Ukrainian businesses must bear.

Tax reform is one of the requirements the International Monetary Fund has placed on Ukraine before it will restart its credit program with the country.

The draft law submitted by the Regions of Ukraine faction, headed by the chairman of Ukraine's State Tax Administration, Mykola Azarov, and the Solidarity faction would give tax breaks to small businesses where the owner is also the only employee. It also reduces overall income taxes from 20 percent to 17 percent and reduces bothersome tax audits to once in three years. It would, however, leave taxes in place to supplement the state pension and state social security fund.

In return for these reduced tax rates, the bill envisages the withdrawal of tax-free status from certain companies and of free trade zones from certain areas of Ukraine.

"We must cancel privileges for joint ventures, which will increase the number of taxpayers and help budget receipts," explained Mr. Azarov.

He explained that the tax burden is slowly shifting in Ukraine from large enterprises to small and medium ones. Whereas in the mid-1990s large enterprises formed the foundation of Ukraine's tax structure, today receipts from small and medium-size businesses amount to 30 percent of all tax collections.

The two factions would also like to see the elimination of what are generally called "free economic zones," which have slowly expanded to the point that they currently involve 10 percent of Ukraine's total area.

The tax bill's initiators said they can no longer wait for across-the-board tax reform and the new tax code. And, while most reform-minded lawmakers are demanding that the 2002 budget be formulated on the basis of a new tax code, there is widespread pessimism that the new code will be passed in time.

"We must place the project for consideration by the lawmakers not later than six months before the new year begins, otherwise it will be difficult for the government to prepare the new budget," explained Petro Poroshenko, head of the Solidarnist faction. "We do not have a majority in the Verkhovna Rada necessary to obtain approval for the main parts of the tax code," he added.

Nonetheless, he and his partners are determined to find some tax relief for small businesses in the interim and believe that this bill provides the best temporary solution. According to government statistics, there are some 600,000 businesspersons who might be eligible for the tax exemption.

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