Kiev, February 27, 2001
EXPECTED RESULTS OF TAX DEBTS RESTRUCTURING
The State Tax Administration (STA) has undertaken steps aiming at improving the procedures of tax administration. Cancellation of the law on Kartoteka 2 has recently been considered. The law On State Tax Authorities, which allowed tax authorities to withdraw the resources of enterprises, sanctioned the Kartoteka 2 mechanism. It made possible to automatically transfer funds from bank accounts of indebted enterprises although forced withdrawal of property and funds should only be made judicially. The STA has already prepared first three regulatory acts stipulating necessary changes. However, the development of proper system requires passage of 24 regulatory acts and involvement of not only the STA but also other ministers and departments.
Undertaken measures should be positively evaluated and encouraged. Necessity to eliminate this interfering mechanism has been highlighted by international experts for several years. Elimination of the Kartoteka 2 is expected to result in the following positive developments:
In order to strengthen the effectiveness of tax collection the Kartoteka 2 elimination should be accompanied by the adoption and introduction of efficient bankruptcy procedures.
According to the STA, tax debts related to the Kartoteka 2 presently amount to about UAH 10 billion. UAH 6 billion debt has been already redeemed through mutual settlements between the budget and state owned enterprises while UAH 2 - 4 billion is impossible to collect since this money had to be paid by companies already bankrupt or liquidated.
Described positive attempts are followed by less favorable changes in the Ukrainian tax system. On February 21, 2001 Article 18 of the law On Procedures for Debt Repayment by Taxpayers to Budget and State Target Funds came into force. The Article provides for writing off and restructuring of payment of tax debts. Among others, it stipulates forgiving the tax debts owed as of December 31, 1999, as well as the fines and penalties imposed on tax debtors. The law refers also to fines and penalties imposed in connection with the violation of deadlines for conducting settlements on foreign trade operations and to so called hopeless tax debts. Restructuring mechanism may be granted on tax debts accumulated in year 2000 (but for no longer than 60 months).
The authorities explain the initiation of tax debt forgiveness by the willingness to liberalize the real sector of the economy from the financial burden of overdue taxes. Further, they aim at stimulating prompt payment of current taxes.
However, undertaken steps can only be commented as the repetition and continuation of bad practice of writing off and restructuring tax debts for individual enterprises and sectors. Recent years are full of relevant examples of ad hoc and discretion decisions in tax legislation. Just to indicate the scope and frequency let us mention that in 1997 tax write off and restructuring amounted to UAH 5.4 billion. In 1998 special decree brought to writing off tax debts incurred by agricultural enterprises. In mid 2000 tax amnesty was put on the agenda and binding decision has not been taken yet. Statistics do not show improvement in voluntary tax compliance. It seems that each action of tax debts forgiveness is followed by new tax arrears accumulation.
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