You're reading: Tax revolt gains steam on revolution’s anniversary

Six years after the start of the Orange Revolution, Ukrainians are taking to the streets again.

Tax protest leader Oleksandr Danylyuk talks to the crowd outside parliament in Kyiv on Nov. 18. The next demonstration will take place on Nov. 22 outside the Presidential Administration on Bankova Street. (Yaroslav Debelyi)

This time, their ire is focused not on overturning a rigged presidential election – as it was in 2004 – but rather on scuttling the adoption of a new tax code that entrepreneurs say will drive all but the largest companies out of business or into the shadows.

The Verkhovna Rada adopted the government’s tax proposal on Nov. 18, with support from 269 lawmakers, a clear majority in the 450-seat body.

But lawmakers said they will still consider and debate possible changes to the legislation.

Protest organizers vowed to step up their demonstrations if parliament passed the code touted by Prime Minister Mykola Azarov.

Their focus will then shift to convincing President Viktor Yanukovych, elected this year after being denied the presidency during the 2004 Orange Revolution, to veto the legislation.

A transparent process for passing the tax code is under way. When I look at the speeches of business representatives… They are demanding that we keep loopholes in legislation so they can avoid paying taxes.”

– Viktor Yanukovych, president of Ukraine.

Citizens nationwide have for months protested against the code, which critics claim could put millions of people out of work.

Tens of thousands gathered on Nov. 16 in Kyiv and on city squares across Ukraine.

The largest crowds turned out in Khmelnytsky, Lviv, Luhansk and Kharkiv, where many business owners and entrepreneurs took part.

Protest organizers, who call themselves the strike committee, said more than one million people took part nationwide.

So far, Yanukovych isn’t budging and has been dismissive of the protesters.

Opening a National Security and Defense Council meeting on Nov. 17, he said rallies against new taxes are organized by people accustomed to working outside the law.

“A transparent process for passing the tax code is under way. When I look at the speeches of business representatives… They are demanding that we keep loopholes in legislation so they can avoid paying taxes,” he said.

Earlier this week, Iryna Akimova, deputy head of the Presidential Administration, said she would read the code only after it is finally adopted in parliament. “It makes no sense to discuss it now, because lawmakers may still make lots of changes,” Akimova said.

In a statement issued on late Nov. 17, the strike committee demanded the tax code be withdrawn altogether.

We will gather three million signatures to hold a no-confidence referendum on parliament. If Yanukovych signs the code, we will seek to remove him from office as well.”

– Oleksandr Danylyuk, head of the All-Ukrainian Center for Business Support.

“The authorities have forgotten that tax pressure [in addition to the rigged presidential election] triggered the same backlash in 2004. I think the start of our next campaign will refresh their memory,” strike committee member Oleksandr Danylyuk, head of the All-Ukrainian Center for Business Support, said on Nov. 18.

“We will gather three million signatures to hold a no-confidence referendum on parliament. If Yanukovych signs the code, we will seek to remove him from office as well.”


Tax code’s critics

The new code makes hundreds of thousands of small companies and individual entrepreneurs no longer eligible for a simplified system that has allowed them to pay a single, relatively low tax rate.

Some say it also hands more powers to the tax police.

Many employers ask their employees to register as private entrepreneurs so that they can pay a single flat tax – currently between Hr 20 to Hr 200 per month – and the employer avoids costly payments to the pension fund assessed against official employees.

The new code limits those who fall under the single tax – such as taxi drivers, hair dressers, accountants and others.

For many professions, the single tax looks set to rise to Hr 600.

A five percent dividend tax for big companies is a big advantage and could lead to Ukraine’s leading companies actually being based in Ukraine and not in offshore accounts.”

– Anders Aslund, Washington-based Peterson Institute.

The American Chamber of Commerce in Ukraine has also complained that the law would “greatly hinder” legitimately operating companies which deduct royalties in line with internationally accepted principles.

“Failure to change the law will damage the investment image of Ukraine in the eyes of foreign investors,” the chamber said in a letter addressed to Akimova on Oct. 20.

The letter warned Ukrainian subsidiaries of international businesses in Ukraine will recover additional tax costs via the increase of the price of goods, works and services.

According to Anders Aslund of the Washington-based Peterson Institute, the new code is good for big companies and bad for small ones.

“A five percent dividend tax for big companies is a big advantage and could lead to Ukraine’s leading companies actually being based in Ukraine and not in offshore accounts,” he told Radio Free Europe/Radio Liberty on Nov. 16.

“It’s good to reduce the corporate profit tax. However, the two big drawbacks are that the simplified tax is being reduced … and another worry is that ordinary international accounting principles are not being introduced.”


Another revolution?

The standoff between the pro-Yanukovych parliament and government, on the one hand, and millions of angry taxpayers, on the other, could trigger civil unrest.

Volodymyr Fesenko, director of Kyiv Gorshenin Institute of Management, said that if lawmakers adopt the tax code in its current form, the president will have to defuse the tension.

“My prediction is that parliament will adopt the tax code and that the president will make a knight’s move: He will veto the bill and send it back for revision,” Fesenko said.

My prediction is that parliament will adopt the tax code and that the president will make a knight’s move: He will veto the bill and send it back for revision.”

– Volodymyr Fesenko, director of Kyiv Gorshenin Institute of Management.

However, Vice Premier Sergiy Tigipko told Channel 5 TV that the tax hikes were necessary because of conditions imposed by the International Monetary Fund for $15 billion in new loans to Ukraine’s government.

“Increases in utility rates and a hike to the minimum retirement age are necessary for Ukraine to receive more IMF credits,” he said. “We are going to have to make unpopular reforms.”

Grassroots protest

Danylyuk, who heads the All-Ukrainian Center for Business Support, said the protests are organized by non-government organizations and civil society groups nationwide.

“Our plans are drafted by a steering group in Kyiv and voted on by electronic mail,” he said, adding that only he and Oksana Prodan, who heads the committee to protect entrepreneurs in the shadow government, are authorized to speak on behalf of 50 organizations supporting the protests.

Non-partisan Danylyuk said organization leaders are leery of politicians trying to score points with the public.

“Politicians always want something in return. Ours is a truly grassroots movement. Small merchants and entrepreneurs have united over this cause,” Danylyuk said.

“None of the pro-presidential parliament lawmakers that are pushing the tax code would come out and address the crowd. We have never had such an impudent government as this one.”

Opposition support

Opposition political leaders have urged Danylyuk and his group to keep protesting.

“What’s most important is that you not stop,” Yulia Tymoshenko told demonstrators outside of parliament on Nov. 16.

“If they press the button and adopt this tax code, we must continue the fight. After parliament adopts the tax code, the president has to sign it. Therefore, our next step should be to go to his palace and tell him not to sign it.”

The dilemma is that Ukrainians live in debt. We are bankrupt. Businessmen don’t want to pay taxes and the elderly receive tiny pensions.”

– Mykhailo Brodsky, head of the State Committee on Entrepreneurship.

Ukrainian Social-Democratic Party leader Yevhen Korniychuk also supported the protests, saying adoption of the new code would prompt many small and medium business to stop paying taxes and go into the shadows, as they did during the 1990s.

“According to specialists, today hidden unemployment in Ukraine is 15-20 percent. After approval of the tax code, the number of unemployed could double, and the state would have to provide subsidies.”

Korniychuk was joined by Anatoliy Kinakh, head of the Ukrainian League of Industrialists and Entrepreneurs and a member of Yanukovych’s Party of Regions.

“The tax code contains provisions which totally destroy the system of small and medium business, leading to job cuts and paying wages under the table. This, in turn, will create social tension and undermine the public’s confidence in the authorities,” Kinakh said on Nov. 17.

Mykhailo Brodsky, head of the State Committee on Entrepreneurship, summed up government’s problem on Nov. 18.

“The dilemma is that Ukrainians live in debt. We are bankrupt. Businessmen don’t want to pay taxes and the elderly receive tiny pensions. Tomorrow, pensioners will take to the streets demanding Hr 1,500 instead of Hr 700. State workers and teachers will be the next to protest. There’s no end to this vicious cycle.”

Kyiv Post staff writer Kateryna Grushenko can be reached at [email protected] and staff writer Peter Byrne can be reached at [email protected].