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« Reply #7 on: April 04, 09:43 AM » |
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Interview Part 1
Serhiy BURIAK: “Given an Appropriate Legislative Framework, the State Tax Administration will Cope With any Task”
Serhiy BURIAK is known as a man of business, on the one hand, and a law-maker, on the other. Co-owner of a large bank and an MP in the fifth Parliament in a row, he has obtained his first post in the executive power. In this interview with ZN correspondents he is sharing his first impressions and plans as the Head of the State Tax Administration.
On first impressions
— Mr. Buriak, It has been almost two months since your appointment as head of the State Tax Administration. What are your most positive and most negative impressions of your new job?
— Most negative? Well, it is an avalanche of documents, 50%-60% of which are totally needless. Huge bureaucracy is depressing. It is out-of-date, dowdy, inelegant, wrong – call it what you want – when tons of paper documents flow across ministerial departments in the 21st century, with its information technologies and e-communications.
In the morning you come to the office intending to resolve important, meaningful issues… and drown under the torrent of routine: you have to sign papers, give instructions, check minor matters, take part in dull meetings and so on and so forth. In the middle of the day you understand you have forgotten all about your sweeping plans. I think we will soon address this dilemma, add a human dimension to our mundane activities, and it’ll be OK.
As for positive impressions, I like the scale and scope of work. STA is a colossal, vertically integrated structure responsive to tasks set by the country leaders. It has powerful, well-trained and capable human resources.
We over-fulfilled the January tax collection plan by 30%, while traditionally such monthly plans were seldom executed at all. The national economy has substantial reserves that have not been tapped yet.
— Why is it only 30%? Yuliya Tymoshenko ordered that the budget revenues from taxes and customs duties be doubled.
— And I fully support her in this endeavour. We are ready to implement this ambitious plan, given an appropriate legislative framework. For tax revenues to grow, the tax base should be expanded. The tax authorities should get a couple of additional legal tools, rather than intensify tax pressure on businesses.
For instance, if the legislature finally adopts a law introducing the notion of “usual price,” the collection of corporate tax alone will grow by eight billion. I think the increase in VAT collection will approximate this figure as well.
The crux of the problem is in dual standards. For some unfathomable reason, an ore mining and processing enterprise can sell its raw materials to [Maryupil] Illych Metal Works at double the nominal price but to an affiliated metal plant at a nominal price. For one thing, it demoralizes the market. For another, it disrupts competition. Besides, enterprises cannot even hope to make a profit when suppliers overcharge them unreasonably. Suppliers make excess profits, which they “hide” in various related companies and firms. As a result, the state loses tax revenues; the government is unable to deliver on its social programmes.
— When the Prime Minister publicly censures ore mining and processing enterprises, does she base her judgment on the analyses prepared by the tax authorities?
— Not only on them. It is the reality of our life. Over the last years, all Ukrainian markets have grown manifold but it has not affected tax revenues. They should increase proportionally.
— Why have you chosen ore mining and processing enterprises as an example? Why not banks, for example?
— The ore mining sector is just the most obvious case. Why not banks? Without eulogizing the banking industry, I have to note that banks paid UAH 2.5 billion in corporate profit tax last year. Once we, first, streamline the formation of banks’ insurance provisions and, second, establish the right relations with the banking sector (which is the most transparent and predictable in Ukraine’s economy; in fact, it is one of the best banking industries in Europe), it will increase its tax allocations every year. By way of comparison, look at the insurance industry that paid as little as UAH 564 million in taxes and mandatory payments last year…
— Does this mean you approve of Mr. Kyreyev’s methods? He was the first to vent the idea of increasing the tax burden for banks and started publishing lists of banks that pay taxes poorly.
— I would not reduce this discussion to particular sectors – all of them should match the taxes they pay with the respective market size. Since all Ukrainian markets – metallurgical, chemical, agrarian, banking, insurance, etc – have grown, their incomes have soared as well. Why has tax collection shrunk? The state should be concerned over it. I still cannot understand why it is so.
— Could the heavy tax burden be the reason? According to the World Bank Report, the Ukrainian tax system ranks 177th out of 178 as the second (to Belarusian) most cumbersome and burdensome tax system in the world. There are about 100 taxes in Ukraine (only Uzbekistan and Belarus have more). Couldn’t this also be one of the factors behind all the unnecessary documentation, reporting, checks, large costs and wasted time?
— I respect my job and will do my best to improve the tax administration and the tax system in general. Yet we should realize that taxes are only as good as the national economy. We should be honest with ourselves. Taxes can be worse than the economy but they can never be better than it. Let us analyze any other international economic ratings. Ukraine is usually in the second hundred – ranking 140-170th. The state should reform the national economy in order to improve taxation.
— Are we in for strategic changes? Will you toughen punishments or, on the contrary, offer new tax incentives? Your peer banker Borys Tymonkin suggested revising the current election law so as to set up a national registry of personal income tax payers and make the top 450 people who paid the highest amount of taxes eligible for seats in Parliament. People will compete to pay more in order to make it to the Rada.
— I appreciate my colleague’s ingenuity but it is philosophy. I would like to talk about more practical things.
We have developed a roadmap of reform and approved it at the Collegium. Its first section is about relations between large taxpayers and the state. A lot of people mistakenly believe that oligarchs are donors of the state budget. It is not true. Within the next quarter we should report to the government on the actual situation with major taxpayers, in order to find out where meaningful partnerships are feasible.
Now, businesses keep complaining about frequent tax inspections. Yet according to statistics, only 10% of enterprises were inspected last year.
On VAT and tax bills
— Entrepreneurs quote different statistics – over 90%. Whence this huge discrepancy?
— I am speaking about planned, regular inspections. At the same time, the tax authorities carried out 189 thousand random inspections to check VAT refunding. Inspections of this kind are envisioned by law. If an enterprise applies for a VAT refund in a certain amount, the only way we can check the claimed amount is by examining relative documents of the company and its contractors.
It is onerous not only for taxpayers but for the tax authorities as well: tax auditors spend 70% of their working time carrying out random inspections. What is the way out? I think the registry of electronic invoices can help. Of course, the registry is not a panacea but it can be instrumental in accounting all companies, contractors and suppliers eligible for VAT refund. We will see the VAT balance that goes to the state budget.
In addition, we will reduce the number of on-site inspections, making them office-based. Taxpayers will feel the difference. And we will resolve the issue of unfunded VAT, amounting to UAH 8.5 billion as of January 1, 2008.
— How exactly are you going to do it?
— Once the registry of electronic invoices is in place, their verification will be automated. Today it is manual. According to the data available to me, about 30%-35% of overdue VAT refunds (worth UAH 2.5-3 billion) are false, non-existent sums. As of January 1, 2008, the overdue VAT refunds (with more than a 60-day delay) amounted to UAH 3.2 billion, of which we settled UAH 2 billion in January. I hope we will repay the debt on VAT reimbursement by April.
Why do companies and their managers hate the tax authorities? One of the key reasons is VAT, which, in its present form, entails a set of troubles for businesses. First, it implies numerous inspections. Second, arrears with VAT refunds are massive. Third, there are lots of VAT evasion schemes. They gave rise to a new sphere of business activity and a new occupation of the so-called “bill pushers.”
By introducing electronic invoices, we will make random inspections redundant, and it will reduce corrupt practices relating to VAT refunding.
We are being criticized for having banned tax bills. We have eradicated shadow schemes, and there is no more demand for “bill-pushers’” services. Eliminating tax evasion is the second item on our roadmap. I promise to do my best to root out tax evasion schemes.
— Don’t you think that the banning of tax bills is akin to trying to cure a headache with a guillotine? In fact, it does not even cure the headache, as businesses are stripped of their non-fixed assets. Why should we always ban everything, instead of learning how to administer things effectively?
— I admit there is a problem. According to statistics, last year UAH 15 billion worth of bills was issued, of which only UAH 2 billion was redeemed in cash. Why did the state receive such a tiny amount in real money? Isn’t it obvious that evasion schemes originate here?
Tax bills are essentially progressive. Yet in the Ukrainian context, they have proven conducive to corrupt practices and tax evasion. Therefore we have to get rid of non-monetary retirement of bills
Furthermore, if we withdraw bills from circulation, does it mean VAT will be refunded automatically? Look, if a law-abiding metal plant imports raw materials but the government refuses to refund VAT, albeit temporarily, and UAH 150-200 million is suspended, what should the management do? Should they use the non-fixed assets, seek loans with a 15% interest rate that will inevitably increase production costs and, at the end of the day, will reduce tax revenues of the government? Subsequently, the situation will spur inflation because the product of the metal works will go up in price. So bills are a good thing as soon as they are redeemed in the monetary form.
— You are only planning to automate VAT refunding but have already banned tax bills…
— Yes, there is still a lack of synchronization and coordination of efforts. The 2008 state budget law provides for more than UAH 100 billion in VAT revenues, to be collected on a par by STA and Customs Service. Since tax bills have been banned at customs, the Customs Service will collect more money, whereas we will have an inflow of VAT refunds. Put differently, we will collect less but will have to refund more VAT. The budget allocations for VAT refunding should increase at least by UAH 15 billion.
— In other words, VAT kick-backs will increase even further, and the kick-back “culture” will prevail.
— We have forgotten all about them.
— Won’t you have to recall them at a later stage?
— We all know that in the past a number of fraudulent schemes were invented to inflate unjustifiable tax credits and claim reimbursement of the non-existent VAT. You can call those schemes black, shady, whatever you like. We address this issue resolutely: there will be no more scheme-based VAT refunding. One of the ways to ensure it is through banning tax bills.
We demonstrated our resolve in January when we refunded VAT to large exporters with real production and real fixed assets. Not a single hryvna out of two billion was reimbursed to a dubious, shady structure. So by the end of the year we will kiss all possible kickbacks “goodbye”.
— Can you guarantee that the system is being transformed so as to exclude kick-backs irrespective of who succeeds you as the STA Head?
— I am sure of that. We will stipulate it in special regulations. I do not think anyone who will come after me will have something criminal on their mind.
— The schemes that you promise to destroy have grown into a serious business of powerful people sponsored, oftentimes, by law enforcement authorities. Why do you think you will be able to put an end to them?
— I do not pretend to be a knight in shining armour. Nor do I urge anyone to play this role. Chivalry won’t work in this case. What we need is solid legislative support.
If the state wants to be respected by its citizens and to live up to their social expectations, it should provide legislative support to the tax authorities. A law requiring that all bills should be retired in the monetary form would solve half of all problems and wipe out half of all shadow schemes.
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