VAT “Automatic” Refund: Political Will Needed

It takes political will to “automatize” the VAT refund. Also, it takes insignificant, but meaningful, changes in VAT administering which are to “strike the trump cards” from the hands of those who “dally” over refund referring to the interests of the state – deems Sergei Stoianov, Director General, Ukrainian Agrarian Confederation

This country has deviated too far away from the path of civilized countries. We already got used to various disgraceful practices surrounding our daily life. However notorious they might be, our “ways” and logics of our actions, our administering, our judicial proceedings, our daily life (read: “communal economy”) and many-many other aspects of our itsy-bitsy life are not understandable either to an ordinary foreigner, or to “weather-beaten” top-managers of transnational companies with their subsidiaries in many countries of the World.

But let me not digress toward the Sublime, since I am going to touch upon just one aspect of this narrow topic – namely, the topic concerning existence of His Majesty VAT in Ukraine, which became the talk of the nation after 15 years of its “Ukrainian style” application.

So many an effort exerted to “humanize” this tax! There were entered about 150 amendments and modifications to the VAT Law, an unprecedented number! There was introduced a dreamed-about-by-the-bureaucrats “panacea” – namely, electronic registers of tax invoices, but He, the VAT, keeps disgracing this country around the whole World, strangling the national economy and life activity, maiming (I am not afraid to say so) the fates of businesses and individuals.

A transnational top-manager and his bosses from beyond the seas and oceans still fail to understand this compete lawlessness (they seem to have checked the Ukrainian business climate, paid huge fees and honoraria to the consultants of the world renown prior to investing a first cent and thus commencing business operations in Ukraine). The Law rules VAT refund in 40-days term (70-day at most, in case of suspicions regarding the tax reporting documents), but in reality, this redemption is being “chewed” year in out. Somebody infinitely keeps looking for embezzlers in the export goods “purchasing chains”, someone else retains the funds slated for VAT refund and then pays out pensions.

This happens because life in this country goes by other, unwritten, Laws.

In the end, why don’t they just make an amendment to this very Law, just a single amendment, a “real” amendment, like Professor Preobrazhensky (M. Bulgakov. Heart of a Dog. – EO) would demand, before letting the President sign the Bill, namely – “VAT refund stipulated by this Bill shall be made at the discretion of … (name of a state organ and/or name of an official) … in the function of …”

But – heck! – nope. They quite realize that nobody will ever try to get in with their dough, and their Ukrainian businesses’ rating numbers will take a dip.

Also, if they write down plainly that an overpaid VAT is not to be repaid, who then will give them a call or enter their office (name of a state organ and/or name of an official) humble beseeching about VAT redemption.

I am confident that this tax and its Ukrainian-style administering is some kind of a Nightinggale the Robber waiting for his Ilia Muromets – namely, political will of the ruling class, President, Prime Minister… That’s precisely the case! Because in this context nothing has radically changed in our Slavic country originating from those epic times when our mentality – and not only good aspects of it – was formed. In this respect, nothing has changed: It still takes just one person (Czar, Hetman) to bring order, and that’s exactly what the top authorities have to do in this country.

The VAT was manually driven into the area of lawlessness, so the same way – manually – it should be brought back! Well, we just can’t survive without this VAT, in particular, form a proper State Budget? I doubt it big-time.

Recently, they started talking about “automatization” of the VAT refund. But it is not clear who will be touched upon by this “automatization”. Agrarian exporters? Rather not, given the approaches of STA to this issue. The STA has formed three “risk-oriented” groups and, judging from the principles of their formation, the grain traders, “vegoilers”, cheese-makers and other agricultural products exporters, who generate 25% of exports and hard currency inflow, have fallen into the second group (businesses of real sector tending to minimize tax payments). This group is really under the target of the STA’s check-ups, the latter to be “…significantly enforced” (http://www.sta.gov.ua/control/uk/publish/article?art_id=249257&cat_id=90622). So, this group is hardly to be recognized as a “diligent” and deserving only an “office auditing”. The only comforting news is that we are not the only ones in this respect: both metallurgists and chemical industrialists are “in the club of outlaws”. Otherwise, how do we understand a breakdown in three groups: First group covers businesses - good taxpayers (and our exporters only demand the tax redemption), Third group includes “transit companies, fictitious firms, i.e. businesses set up in order to minimize taxation of the third persons” (off and on the STA enlists agrarians in this group).

… Well, they just can’t approve for us any law that would be simple, understandable, fair and humaine.

They just fight those firms-“butteflies” before they start VAT refund to “some” Nibulon or Cargill. Because those hit-and-run firms are established by tax administration and customs officials with the purpose of artificial VAT creation, on which Mykola Azarov, Prime Minister of Ukraine, recently made a statement in his speech before USPP.

(http://www.kmu.gov.ua/control/uk/publish/article?art_id=243375323&cat_id...).

These prospects do not appeal to us, so doesn’t the STA classification of VAT payers. This is why I propose to enter in the legal acts the following VAT redemption instrument: the exporter applying for VAT refund shall submit guarantees (in hryvnia or hard currency) by a banking/corporate institution to the STA organ. The sums to be irrevocably guaranteed by the automatized VAT refund should be fair and not lower than those revealed and acknowledged by a business entity itself or verified, in conformity with the law by judicial court on this business entity, sums of VAT groundlessly repaid for the past three years. If the facts of the latter type are not available on a specific business entity, the sum is to be at least in a certain amount, e.g., $1 million.

At this point all the ducks will be put in the row, and the “conscience” of both tax collectors and exporters will show, since the guarantor (a bank or a corporation) is like no one else aware of the diligence of their client or partner. Yes, the guarantee will cost some money, but it won’t be compatible with billions of losses incurred during all these years by our exporters who “extend loans” to the state and thus causing damage to their businesses.

At the same time, in order to teach others no to do so, the Cabinet of Ministers has to initiate and promote for VR approval a number of amendments to VAT Bill concerning the kick-in of economic sanctions for unlawful delays with this tax refund at the levels applied to tax payers for overdue tax payments (120% of NBU discount rate applied to the overdue sum per day).

That’s the only way to cure this carcinoma eroding this country.

That will be another “moment of truth”!