12th Kyiv Post CEO Breakfast talks taxes - Oct. 19, 2017

The touchy subject of taxes and how they are administered took center stage for two hours at the Kyiv Post CEO Breakfast on Oct. 18, with most discussion and questions directed at Myroslav Prodan, the acting head of the State Fiscal Service of Ukraine.

The event was sponsored by DHL Express Ukraine and S&P Investment Risk Management Agency, formerly Siutkin & Partners.

A consensus seemed to be that while the collection of taxes by the government has become more transparent and less burdensome, especially when it comes to getting refunds on value-added taxes, more needs to be done to improve the business and investment climate. Businesses are still facing raids of dubious legality and for dubious reasons, including unscheduled inspections by the tax police, which are not supposed to be in operation any longer. Moreover, Ukraine needs to go much further in simplifying and faster in transferring most tax transactions online. Additionally, complaints were lodged about the professionalism and competence of some of the tax inspectors. And, also, it was noted that many tax disputes end up in lengthy, costly battles in court or, in the case of foreign businesses, require time-consuming intervention from ambassadors of those countries. Such unpleasant experiences filter through the business community, deter investment and prompt some existing investors to leave.

Ukraine’s government officials, however, contend that they are making great progress in shifting to online services, in reducing tax raids and other inspections at businesses and in making collection simpler, fairer and more transparent. Ukraine’s government has collected at least $1.5 billion in taxes beyond expectations, helping finance a state budget of roughly $40 billion. Ukraine’s tax revenues are growing because of an improved economy and the increase in the minimum wages subject to taxation, making it more difficult for businesses to evade taxes. All the while, the government says it has reduced the amount of VAT refunds owed from Hr 15 billion ($566 million) to Hr 4.2 billion ($158 million).

Amid all of this improvement, however, Ukraine’s government is still owed billions of dollars in back taxes by individuals and companies. Tax avoidance through offshore companies remains high. And, even within the Finance Ministry, which oversees the State Fiscal Service, tax reform is seen as essential to improving tax collection by billions of dollars a year. The State Fiscal Service, besides administering taxes, also oversees the State Customs Service, which Finance Minister Oleksandr Danyliuk has called a fiscal “black hole” due to unchecked illegal smuggling and sometimes arbitrary import and export duties in what is still seen as a corruption-riddled service.

One of the big challenges for managing government efficiently and honestly is the low level of employee salaries, estimated at between $300 and $600 monthly for many public service employees. Such low wages contribute to the exodus of qualified personnel from public service and invite corruption.

Participants in the 12th Kyiv Post CEO Breakfast included:

Myroslav Prodan, acting head of the State Fiscal Service of Ukraine

Vadim Sidoruk, CEO of DHL Express Ukraine

Natalia Osadscha, partner, S & P law firm

Guillaume Scheurer, ambassador of Switzerland

Algirdas Semeta, business ombudsman of Ukraine

Dmytro Kyselov, country manager, Procter & Gamble

Andriy Pishchikov, managing director, Hewlett Packard Enterprise

Vladimir Simonchuk, head of the board, UNIQA life insurance

Gleb Akchurin, general director, Rhenus logistics firm

Ansgar Bornemann, market head, Nestle Ukraine

Borys Labenskyi, country head, Sandoz Ukraine