Kuchma administration announces program to cut regulations for business (02/08/98)

Kuchma administration announces program to cut regulations for business

by Roman Woronowycz
Kyiv Press Bureau

KYIV - The Kuchma administration moved on February 3 to lessen the burden of government regulations and audits that have stifled business development in Ukraine and to establish a fixed tax for small businesses.

In a presidential decree, Mr. Kuchma called on his Cabinet of Ministers to begin implementing a program of government de-regulation that calls for "simplifying the process of creating, registering and liquidating businesses; shortening review periods for obtaining licenses, certificates and patents required to begin business activity; limiting the inspection and auditing of business activity; simplifying customs procedures for cargo in import and export operations; and ensuring the stability and consistency of the normative-legal regulation of business operations."

The president also has authorized his government to pare the list of types of businesses that must be registered in Ukraine from more than 100 to less than 50, and to develop a plan to allow businesses to register quickly, without the various bureaucratic entanglements that today befuddle many entrepreneurs, said Yuri Yekhanurov, chairman of the state Committee on Business Expansion. He was speaking at a regular weekly press briefing at the Presidential Administration Offices.

Mr. Yekhanurov said business expansion in Ukraine has stagnated for the last two years, with the overall number of registered businesses remaining at around 90,000.

Although the announcement should be music to a businessman's ears, many are skeptical that the changes will occur. "Businessmen have already told me that although they are all for such moves, they cannot believe that change will occur," said Mr. Yekhanurov.

It is the entrenched bureaucracy that will have to make the most changes - a bureaucracy that remains comfortable working in the time-consuming, paper-pushing Soviet way, and has changed only enough to make life for the businessman miserable here. "Audits and inspections today are murdering our businesspeople," said Mr. Yekhanurov. "I would like to underscore the need for a change of attitude toward the small-businessman, specifically tax inspectors."

He explained also that overlap, redundancy and over-regulation must be eliminated. He cited the example of the meat industry, in which meat processors face inspection for quality by the State Department of Standards, the Ministry of Agriculture and the State Department of Consumer Protection.

"Is it normal that every item on a restaurant menu must be approved by a government inspector, or that to re-build an automobile you need to have a degree from an automotive institute?" he queried.

"It will not be easy to do this," said Mr. Yekhanurov, referring to the de-regulation program. However, he said that by April 1, the date the president has targeted for implementation, the plan will be in place.

The degree of bureaucratic resistance to reforms in Ukraine became quite evident when former Minister of Justice Serhii Holovatyi attempted an anti-corruption program last spring. In the end it cost him his job, as ministers and careerists resisted change to the way they do their work. Mr. Yekhanurov said he has already witnessed much of the same resistance.

"There is pressure not to change," said Mr. Yekhanurov. "The person who wrote me a letter to tell me the problems with inspections of automobile mechanics, and with whom we agreed, wrote again several months later that he had changed his mind. 'I feel better when I am reviewed and inspected,' he wrote."

"Today I must admit that support for the businessman at the government level is still at the starting gate," said Mr. Yekhanurov.

Fixed tax rate

Another part of the Kuchma administration's new effort to stimulate business is a fixed, presumptive tax rate, legislation for which was submitted to the Verkhovna Rada the first week of February and which has passed a first reading. If approved, the government would tax small, family-owned businesses at a fixed monthly rate of 20 to 100 hrv, based on the size and amount of business handled.

Today the government estimates that there are around 500,000 such businesses that work in the shadow economy, mostly as retailers of imported consumer products.

"I think we have to be pragmatic - and I think that we are finally beginning to be. Do we want to receive tax payments? If people are not willing to pay the current variable rate, let them pay a fixed rate," said Mr. Yekhanurov.

Prof. Jeffrey Sachs, the world-renowned economist, who was in Ukraine the day the president's de-regulation program was announced, said he agrees on the need for a fixed, presumptive tax in Ukraine today. "The fixed tax is a very good idea right now," said Prof. Sachs. "I would like to see it extended to a broader range of businesses. It has worked for other countries."

Mr. Sachs said that eventually the tax system in Ukraine still must be overhauled. "It is impossible to live with this tax system, where if you try to be legal you end up giving all your money to the government," he explained. "What is needed is big tax reform and lower tax rates.

Mr. Sachs, speaking at a press conference after consulting Ukrainian authorities on one of his regular trips here, enumerated what he feels the government must still do to move the economy into the free market zone.

That list includes:

broad-based tax structure reform and lower tax rates to broaden tax payer compliance;
spending cuts, especially in areas where there still are large amounts of waste, such as the Chornobyl Fund;
banking reform, where the government has used the banking system to push credit to loss-making enterprises, which Mr. Sachs called "a policy that must stop";
more foreign investment, which the economist said was "shockingly little";
privatization of the telecommunications system;
much greater transparency in IMF and World Bank dealings with Ukraine;
transparency in the privatization process; and
legal reform and adherence to the rule of law.

Prof. Sachs said the problems facing Ukraine, although very serious, are not as formidable as they may seem, but that in the current pre-election season everything becomes more complicated. "I believe the matters that need to be addressed can be addressed in a few weeks. Not solved but addressed," said Prof. Sachs. "But right now there is a politically charged environment."

| Home Page |