Oleksandr Klymenko, the 31-year-old head of the State Tax Service, has gone on a media blitz in recent weeks, boasting of improved tax collections, of pulling businesses out of the shadows and simplifying tax reporting by taking it online.
In interviews with journalists, Klymenko also outlined his plans to make tax collection more efficient, reduce the number of tax inspections that firms endure and improve government’s performance in refunding value-added taxes.
Experts, however, have a less rosy picture of his work since he took over in November last year. They say there has been no noticeable change in the pressure on businesses or the share of the economy that remains undeclared and untaxed.
Klymenko, a native of Makiyivka and reportedly an acquaintance of President Viktor Yanukovych’s family, was appointed first deputy head of the tax service last year, after working as a top tax official in Donetsk and Donetsk Oblast for several years.
When working in Donetsk, local media reported that Klymenko collected record amounts of taxes while squeezing the economy out of the shadows and curbing the number of people who receive untaxed salaries in envelopes. Klymenko said he is using his Donetsk experience to improve the tax service nationwide.
“I am conducting the same reforms that were proved in Donetsk, but on a larger, all-Ukrainian scale,” Klymenko said in a Feb. 10 interview with Dzerkalo Tyzhnia.
The new tax code really didn’t change the tax system; it still remains an agency in manual control.
– Oleksandr Zholud, economist with International Centre for Policy Studies
Looking at figures alone, it seems his work so far has been a success. According to the tax service’s figures, taxes and duties collected in 2011 increased by nearly 40 percent to almost Hr 200 billion.
This is an impressive figure considering that the Ukrainian economy is still recovering from the economic crisis and about half of metallurgical enterprises, formerly breadwinners of the nation’s economy, are still reporting losses.
During his live interview to Channel 5 on Feb.15, Klymenko attributed the apparent success to reducing the shadow economy in 2011. But tax and business experts disagree.
“There is no feeling that the economy is going out of the shadow significantly. If that was true we would have witnessed a substantial increase in gross domestic product,” said Volodymyr Kotenko, partner and head of tax and legal practice at Ernst & Young in Ukraine. He added that the increase may have come from tax authorities asking businesses to pay profit taxes ahead of time in order to receive VAT refunds.
Tax chief Klymenko said in his Dzerkalo Tyzhnia interview that the amount of VAT refunds – a constant source of complaint for foreign investors – doubled in 2011, from Hr24 billion to Hr 43 billion, more than one-third of which was paid back automatically.
Another big improvement, according to Klymenko, is that the number of checks by tax authorities was slashed almost in half from 23,000 in 2010 to 12,000 in 2011. He said there were no checks on small businesses due to a moratorium and that the total amount of fines collected reduced significantly from Hr 2.54 billion in 2010 to Hr 1.15 billion in 2011.
But the business community and experts say they have not noticed major progress on VAT refunds or reduced pressure from tax authorities. VAT, they said, continues to be refunded in some cases but not in others on a selective basis.
“To be honest, I did not hear any exciting feedback from entrepreneurs regarding that the amount of check was reduced,” Kotenko said. “Nobody said that tax authorities stopped visiting them or that if they came they were so nice and friendly that they could hardly be recognized.”
Among other improvements, Klymenko said that almost all businesses, 93 percent, sent their financial records in electronic form at the end of 2011 in contrast to only one-third that did so at the beginning of 2010. He dismissed complaints of no improvements as a “phantom pain” that some patients feel even after their injured leg or hand was amputated.
Experts say a major problem with the tax service is that it works to fulfill targets for collections set by the central government, squeezing the money from selected businesses. Klymenko denied the existence of targets.
The new tax code introduced last year has made little difference to the system, experts say.
“The new tax code really didn’t change the tax system; it still remains an agency in manual control. It works with companies based on an individual approach,” said Oleksandr Zholud, economist with International Centre for Policy Studies.
Kyiv Post staff writer Oksana Faryna can be reached at [email protected].
