Oleg Chayka writes: Simple and transparent tax policies are wanted.
Ukrainian export-oriented industries need to offer competitive prices in order to sell their goods on volatile international commodity markets.
But the government’s continued failure to refund value-added tax (VAT) puts many companies at a disadvantage in competition with firms from neighboring and Asian countries. It also discourages foreign companies from investing in Ukraine.
Failure by the government to return value-added tax to exporters has already ceased to be a purely fiscal issue and became an important indicator of Ukraine’s investment attractiveness.
Indeed, why should foreign investors seriously consider Ukraine for investment, especially export-oriented industries, if the cost of production by default goes up dramatically due to the government’s consistent failure to give refunds for the value-added tax?
Combined with corruption, the absence of the rule of law and excessive regulatory and administrative burden, taxation has become a decisive factor for many foreign investors to divert their investments past Ukraine.
Being aware of the VAT refund problem, the government had promised to resolve the longstanding sore point of VAT in the new tax code by introducing an accelerated, automatic refund of VAT.
However, the recently introduced mechanism is so bureaucratized that it is impossible for most bona fide businesses to formally qualify for it.
This mechanism is primarily introduced for operating export-oriented businesses that do not have any taxes due and meet a long list of additional (primarily formalistic) requirements.
As the tax authorities do not have instant access to all the necessary information to confirm taxpayer’s eligibility for the accelerated VAT refund procedure, they have no choice but to solicit the relevant confirmations from other state authorities, and/or put the onus of proof on the taxpayers.
And this is not the end of the VAT refund saga. Even though the tax code is clear that the VAT refund claims are only subject to the desk audit by the tax authorities, the government has recently ruled that almost all such VAT refund claims be subject to field VAT audits.
Numerous additional bureaucratic barriers are also inherent in the accelerated VAT refund mechanism. All these inefficiencies should again significantly delay the refund of VAT beyond the ideal four-week period.
To sum up, the effective accelerated VAT mechanism is drafted in such a way that it would virtually be impossible for most bona fide businesses to qualify for it.
This situation creates ideal environment for corruption, business blackmailing and selective favoritism to businesses that are loyal to the government.
If the government is indeed serious about enhancing investment attractiveness of Ukraine, setting up a fair, reasonable and transparent VAT refund mechanism would be a good starting point for achieving this goal.
Oleg Chayka is director in the tax and legal department of the Ukrainian office of KPMG, an international consulting firm.
