Ukraine's President speaks on VAT rebates

Victor Yushchenko convened yesterday a meeting to discuss the issue of VAT rebates, President's press office reorted.  

In his speech, the President said it was rapidly becoming a huge problem for Ukraine: “We are worried about the signals we are receiving from the regional elite about tardy VAT refunds. We are watching one of the fundamental taxes of the national budget, which amounts to 37% of our revenues, become murkier every week.”

He said there were numerous “criminal schemes” in this area, with false companies being registered, fraudulent export operations conducted, and tax documents forged. All these machinations boost corruption, criminalize the economy and lead to non-transparent budget management.

The President said the Prosecutor General’s office had initiated 259 criminal cases on VAT rebates in 2006, reprimanding the Tax Administration and the Interior Ministry for being “not active enough.”

Supporting his arguments with convincing statistical data, Mr. Yushchenko outlined major problems in the area of VAT refunds, the most significant of them being government interference in the economy.

“The answer is obvious: there are budget manipulations,” he said, urging the State Security Service and the Prosecutor General’s Office to thoroughly investigate such violations.  

“I am speaking about the artificial withdrawal of money from circulation. In other words, the government builds relations with business that are not stipulated by the budget and borrows billions of hryvnyas improperly and virtually for free,” he said, adding that the government could thus trigger the collapse of Ukraine’s GDP. “To bring the economy to a halt, one must stop refunding VAT.”

Among other threatening tendencies is the inefficient execution of the budget schedule by the Finance Ministry, the violation of interregional proportions, especially in August and September, and the discrepancy between the rate of rebates and the dynamics of the regional economy. To substantiate his criticism, Yushchenko said the rate of VAT rebates had doubled in Donetsk last August but decreased fourfold in Kyiv.

“Things that are happening today with VAT show that the economy is being profoundly criminalized. The practice of offering 40% bribes for refunds is becoming widespread again,” he said. “I think legal funds that are never recorded are being concealed from the state.”

As far as anti-corruption measures in the area of VAT refunds, the President called on law enforcement agencies to eradicate “any criminal manifestation of this process” despite many obstacles they face. He said all executive institutions should coordinate their efforts: “Let us not fool around with information. The Presidential Secretariat must have objective and full information.”

The participants of the meeting exchanged views on how to improve the situation. Poltava Governor Valery Asadchev suggested that they create a fund to rebate value-added tax that is not directly linked to the budget. He also said it would be appropriate to permanently inspect Ukraine’s biggest exporters. Kyiv’s Deputy Mayor Anatoly Holubchenko said this issue should be discussed at a special meeting of the National Security and Defense Council.  

Summing up results of the meeting, Yushchenko said it was incumbent on the government to tackle the problem responsibly.

“Business is shouting. Business is crying. Business is giving us F’s for failing to organize elementary things, which are built in all normal economies according to mechanisms that do not harm business,” he said.  

Yushchenko ordered the governors to set up commissions involving prosecutors, law enforcement leaders, journalists and businessmen to study the problem locally. The Tax Administration must provide these commissions with lists of VAT refund claims.  

He demanded that the Security Service, the Interior Ministry, the Control and Revision Department and the Account Chamber disclose shady schemes involving officials. The Security Service must also try to find out which executives stand behind such violations and submit their report to the President in thirty days.

The issue will be discussed again at an NSDCU meeting.