Nov. 18 (Reuters) - About 2,000 small business owners protested outside Ukraine's parliament building on Thursday as deputies neared a final vote on a new tax code which critics say will drive millions of small entrepreneurs out of business.
Plans to reform the ex-Soviet republic’s notoriously bad tax system have triggered the biggest public protests against the government of Viktor Yanukovych since his election in February and galvanised a fractured political opposition.
The government is under pressure from major creditors like the International Monetary Fund to reform an inefficient tax system which ranks third worst in the world after Belarus and Venezuela, according to a World Bank survey of 183 countries.
As part of plans to rebalance the budget and satisfy the IMF, the government plans to abandon tax breaks for millions of small entrepreneurs who represent Ukraine’s emerging middle-class.
But critics say the new tax code, likely to be approved by Yanukovych’s allies in parliament, offers a number of loopholes to his wealthy industrialist backers while hitting millions of low-income earners.
The new tax code will significantly broaden the category of those small businesses which will have to submit details of their operations to the state tax inspectorate, and pay 25 percent of their profits instead of fixed payments.
This will immediately take in a huge number of people like market traders, taxi drivers, cafe owners, street kiosk operators and hairdressers who have until now simply made monthly ad hoc payments to district tax inspectors.
Critics predict that thousands of people will now be forced into a shadow economy in which they "massage" their profit submissions and lie about the number of people they employ.
COSSACKS AND OUTLAWS
"After this tax code comes in, we will all be playing a game of Cossacks and outlaws; the Cossacks will be the tax inspectors and the outlaws will be the whole country," opposition deputy Serhiy Mishchenko said in parliament on Thursday.
The new tax code will limit small business owners to employing no more than four people — compared with up to 10 people now — and force them to register their businesses with the tax inspectorate.
The situation is complicated by the fact that tax inspectors in Ukraine have, like traffic police, a reputation for corruption. Many small businesses see not just their taxes going up, but the levels of payments they will have to make in bribes.
The former Soviet republic needs to cut budget deficit to 3.5 percent of gross domestic product next year from this year’s five percent under the terms if its $15 billion IMF deal.
But even the Fund has reservations, saying that in the short term the proposed tax code will be "revenue neutral" — meaning it will not immediately generate extra income for the budget.
Protesters outside parliament on Thursday carried signs that read "Down with the tax code". "The tax code is too much of a burden for us. If it is passed, we will die off," said one demonstrator, Hryhoriy Busol, a furniture trader.
SCUFFLES IN PARLIAMENT
Popular resentment against the tax reform plans have injected the fragmented opposition with a a new lease of life.
Deputies from the BYuT bloc led by Yanukovych’s long-time foe Yulia Tymoshenko scuffled with members of the ruling Regions Party in parliament and emptied buckets of coins into the government lodge.
The Tymoshenko bloc read out an appeal from the protesters, urging Yanukovych to veto the bill if it was passed. His office says he will first need to study the final version of the bill.
As in many other ex-Soviet republics, businesses often choose to pay bribes instead of taxes, a practice that saves time and money but brings nothing into the national coffers.
The idea of raising taxes just a few months after a hike in gas prices for households — also required by the IMF — has stirred protests not just in the capital city of Kyiv but in other cities as well.
