Ukrainian publishing industry seeks tax incentives to survive (07/30/00)

Ukrainian publishing industry seeks tax incentives to survive

by Roman Woronowycz
Kyiv Press Bureau

KYIV - National Deputy Les Taniuk, chairman of the Verkhovna Rada's Committee on Culture and Spirituality, told journalists that the Ukrainian publishing industry is in dire straits and soon could disappear altogether if the government does not give it support in the way of tax incentives.

The former theater director said the book market in Ukraine has been glutted by Russian products, especially in the last two years, because of a liberal tax policy adopted by the Russian government in 1995 on the export of published materials that is quickly destroying the Ukrainian publishing industry.

Mr. Taniuk called on the Ukrainian government to give the industry much-needed relief from a 20 percent value added tax (VAT) on manufactured materials and further exemptions on the import of printing equipment and paper to make it competitive against the untaxed Russian industry.

Mr. Taniuk said that such a bill currently winding its way through the Parliament, must be passed to at least give the industry a fighting chance against the lower printing costs of Russian publishers because of the tax advantages they enjoy in Russia.

"Without it you can put a cross on the Ukrainian publishing industry," said Mr. Taniuk.

Mr. Taniuk's observations came a month after hearings by his committee on the state of Ukrainian publishing, held on May 12, in which there was little disagreement on the critical state of the sector - albeit some divergence on what needs to be done to fix it.

Vice Prime Minister Mykola Zhulynskyi summed up the tenuous state of book publishing in comments he made during the hearings, which first were made public by Mr. Taniuk on June 11.

"We have come to a point at which tomorrow we could be ordering textbooks for our schools from Russia," explained Dr. Zhulynskyi.

He said that, while Ukraine battles a history of Russification, a key weapon in that war - an extensive publishing industry that publishes in the native tongue - has not been allowed to develop, which only further complicates the problem of a lack of Ukrainian-language textbooks, encyclopedias, dictionaries, directories and scientific and children's literature.

Numbers provided by the Ukrainian Association of Publishers demonstrate just how extreme and sudden the downturn in Ukrainian publishing has been.

In 1990 Ukraine published 170.5 million books, while in 1999 it produced only 20 million. From 1998 to 1999 the number decreased by more than half.

A total of 148 different textbooks were scheduled to be published for Ukraine's schools during 1999. However, only 7 percent of those actually went to press. Yet, only 59 percent of grade school kids in Ukraine have textbooks available to them, while in the upper grades the percentage falls to 34 percent. While Ukraine needs about 216 million hrv to assure that there are sufficient texts for all school children, this year's budget allotted only 83 million hrv.

In the field of general publishing the situation is no better. By May of this year Ukrainian publishers had printed merely 221 titles - a nearly 50 percent drop over the already paltry figure of 403 titles printed in the first five months of last year.

Russian publications today make up 90 percent of all titles found on the Ukrainian book market. Two-thirds of everything produced in Russia and Belarus is sold in Ukraine.

Oleksandra Afonina, head of the Ukrainian Publishers Association, said she believes the condition of her industry could have been very different if government officials would have taken the time to care.

"The situation of the Ukrainian book, in my opinion, has been created artificially," said Ms. Afonina. "There are specific individuals who should shoulder the responsibility."

While she did not identify those individuals in her report to the parliamentary committee, she said that a key moment in the Ukrainian book publishing crisis came in late 1995, when Russia's lawmakers passed a bill that removed the VAT on all Russian publications and, more importantly, any export taxes on publications leaving the country.

She said that by the first two months of 1996 Ukrainian publishing houses began to feel the pressure, but the government has yet to hear their cry for help.

She explained that the Ukrainian book crisis deepened in October 1997 when the Verkhovna Rada passed an income tax law, which forced wholesalers to pay a tax on books they purchased immediately upon receipt; expected publishers to pay a tax on deposits for book orders; and deemed paper purchases for production a part of a publisher's income and therefore, subject to taxation.

She said that delighted Russian publishers, seeing a window of opportunity, began to flood the Ukrainian market with every sort of cheap publication and to increase the amount of their shipments.

Russian publishers have also benefited from a lucrative black market that thrives in Ukraine, which further reduces the cost of a Russian book. It is believed that two-thirds of what is sold in Ukraine enters illegally through the black market and Ukraine's "transparent" corridors with Russia.

"The black market of pro-Russian businesses is flowering, while the legal Ukrainian one is dying," said Ms. Afonina.

She explained that there are three ways Ukraine can deal with the situation in which its publishing industry finds itself.

One, Ukraine can maintain the status quo remain, with no tax relief, in which the industry will slowly wither away.

Two, it can put Ukrainian publishers on an even playing field with their Russian counterparts by removing the VAT, export taxes and excise taxes, as well as import tariffs on printing equipment and materials. In that scenario, she said, Ukraine's publishers would survive, although not thrive, because the last years of crisis have left them with few real resources with which to make capital investments.

Three, Ukraine can develop a complex series of measures to develop a solid legal and competitive base for the publishing industry. She believes that if the effort was intensive, the draft laws and regulation that would lay the foundation for a resurgence of the industry could be developed within three to five months.

Ms. Afonina underscored that reforms must take place in attitudes within the industry and the population as well. For example, parents must accept that textbooks will no longer be free and that some nominal costs must be borne by them. She also said that government purchases of textbooks must take place in tenders, and not in the unstructured system of favoritism used today.

In its final recommendations, Mr. Taniuk' s committee did not suggest as comprehensive a plan as did Ms. Afonina. Among its seven resolutions were three specific proposals: that its committee work with Verkhovna Rada factions to change the law on the value added tax that would exclude the technical operations of the publishing industry from taxes, including excise taxes on printing equipment and purchases; to develop the conditions for a system of government credits to the publishing industry, and to determine the feasibility of implementing protectionist policies for the domestic book publishing industry.

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