Last week, the business community was abuzz when entrepreneurs went to the President’s Office to hold a dialogue with the authorities. The reason for this was several high-profile scandals when law enforcement agencies took actions that business considered to be pressure from the state. This is how another attempt was made to build government-to-business communication to ensure business rights and security from the state.
Businesses are outraged by the traditional customs mess, the blocking of tax invoices, the unmotivated interest of the national police, prosecutors and other law enforcement agencies, and the large number of inspection bodies that prevent them from working effectively. Most of these problems are old and have existed for at least 10 years. But every time we expect that after a certain point C, “this will not happen again”, we will wake up in another country and no more problems will affect our business.
The same thing is constantly happening around the tax system. Over the past 15-20 years, Ukrainian business has been constantly under the influence of two paradigms: on the one hand, we have been constantly offered radical tax reforms that could not be implemented, and on the other hand, there has been a constant desire to introduce new administrative restrictions and rules that would allow us to collect taxes better and more fully. Or simply to create new reasons to expand the tax service staff.
In general, the main thing that has caused entrepreneurs to be sceptical of the state system throughout the years of independence is the unknown. Because the rules of the game were changing steadily. And this was perhaps the only stability in business-state relations. Moreover, changes in the rules were tied to the situational situation, to the name of the head of government or the president, to the balance of power between the largest financial and industrial groups. In 2014, external security factors were added to all this. The occupation of Crimea. The war in Donbas. The coronavirus pandemic. And since 24.02.2022, a full-scale Russian invasion.
The majority of Ukrainian entrepreneurs have joined in to support the country in its fight against the aggressor. The government has also taken several steps towards us. A moratorium on inspections. Temporary tax cuts. But as time passed, some of the old practices returned. And this is in an environment where the Ukrainian economy and Ukrainian society are under the greatest pressure in the history of independence. Of course, this is a consequence of the fact that some state institutions, such as the tax authorities, customs, and some law enforcement agencies, are under pressure. In addition, state ecologists, state geologists, architectural inspection, the State Emergency Service, the State Food Safety Service, the National Securities and Stock Market Commission (there is no stock market, but there is a national commission), the State Labour Service, the Pension Fund and about two dozen other government agencies and departments can inspect, control or have a destructive impact on business operations.
As an entrepreneur, I have worked in almost a dozen industries – from renting business offices to gas production, and from financial services to complex manufacturing. Of course, over 20 years, I have had hundreds of encounters with inspection, control and fiscal services and authorities. And mostly because on 1 January of each new year (and sometimes on 1 July, twice a year), some rules, regulations, and standards changed. I won’t say that we were extorted every time, but the lawyers and management of each business spent a lot of time on all these procedures.
And now all this is continuing. Entrepreneurs hoped that the great war would completely reset the relationship between business and the state. But this has not happened yet. No one denies the need to pay taxes. No one denies the need for control. Given the right dialogue, business, given the extraordinary conditions we are currently facing, will even be willing to pay more.
Businesses should not suffer from abuse by the tax authorities or law enforcement agencies; they should work. The costs of lawyers and accountants are too high because you have to constantly adjust to innovations that no one has asked for and that are of no use. Everyone should follow the example of the National Bank, which in recent years has become an island of stability in terms of regulation and control, and all innovations mostly simplify the life of business. This is at least true for the financial services and insurance markets.
He needs two clear steps towards him from the state:
- Transparency of communication. The government (parliamentary majority, presidential team, Cabinet of Ministers, Ministry of Finance, tax and customs authorities) should speak with one voice. Businesses need to understand and publicly hear how the government sees economic development, how it views the tax system, and what is being done to ensure that law enforcement agencies protect the law and not hunt down individual entrepreneurs. It is very difficult to believe in positive prospects when you see different government officials sending different signals to businesses: tax reform and sharp tax cuts, additional “tightening of the screws” and the return of double inspections, searches and criminal cases with dubious backgrounds, promises of reforms and favourable conditions for recovery. This should not happen. It may be necessary to create an information platform for business and investors to interact with the state system to avoid such cases.
- Predictability of rules. The best thing to do both during and after the war is not to change taxes, or at least tax administration, directives, inspection rules, not to create new regulatory bodies and gradually limit the influence of the old ones. A business employing 20 people should not be visited by 25 regulatory authorities. This is nonsense. But it is still part of the Ukrainian reality. No one in their right mind would ever demand that the country be turned into a huge offshore zone with zero taxes and no regulation, only clarity and stability of directives, laws, management and regulatory practices.
Ukrainian business is ready to invest in the country right now, ready to work in any external circumstances, but it wants to see the state system as its partner, with whom it will build the economy and the country together. With whom it will be necessary to restore the country and ensure the Ukrainian economic miracle after the victory over the enemy.
Such steps will help make the country truly attractive to investors. In fact, foreign investors have been demanding the same from the Ukrainian state for many years. This is exactly what they see in Poland. And as a result, 96% of foreign investors are willing to invest in Poland again and 88% of surveyed companies intend to increase or maintain the same level of investment spending in Poland. We should aim for the same number. To the same level of transparency, clarity and simplicity.
Can Ukraine go this way? Can business and government start interacting in a stable and civilised manner? Yes. By and large, we simply have no other choice. I am confident that both the government and the business community will come to this realisation.
Businessman and public figure Alexander Katsuba
