The People Strike Back

By Author: People First Foundation
Total Articles: 17
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Statement
An address to all freedom-loving nations, governments and parliaments of the free countries of the world, and to the participants of the EU-Ukraine Summit

After the presidential elections in Ukraine, the situation in our country has worsened, especially for us, small- and medium-sized entrepreneurs (SMEs). We are not politicians, we are men and women, people ready to pay state taxes, but in accordance with a transparent procedure. We love our country; that is why we cannot stand aside when our lives are being ruined.
On 18 November 2010, the Ukrainian Parliament adopted a new Tax Code, which was drafted and submitted by the government. The Code was adopted without proper discussion and without taking into consideration the interests of entrepreneurs.
It was adopted by, less than 100 MPs who voted on behalf of 269 colleagues. This utterly discredits Ukraine's parliamentary system and the adopted law. The Tax Code will completely destroy the middle class in Ukraine. It deprives millions of Ukraine's citizens of their rights, robbing them of even a minimal means of existence and survival.
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... In particular, it introduces the right for tax authorities to arrest taxpayer's assets without a court decision, thus violating generally-accepted property rights. Indeed, the Tax Code gives the tax authorities unprecedented powers that will help them to simply rob entrepreneurs.
As regards the economy, the citizens of Ukraine have been pushed to the edge of the abyss. Entrepreneurs are subjected to highly intrusive checks without notice. During such checks the activity of their enterprise is stopped and bribes are demanded. Enforcement and fiscal bodies are raiding many enterprises, violating all procedural norms. Entrepreneurs are even forced to pay bribes even to get VAT refunded.
In recent months mass protests were held in cities and towns across Ukraine. Entrepreneurs and employers, who try to create a future for the country with their work and inventive capacity, took part. We are the members of different business associations and unions of entrepreneurs. We are not involved in politics. The protests all over the country were neither organized nor inspired by any political party. First it was a spontaneous reaction, then we organized in reaction against the intention of the authorities to deny our rights to have jobs.
Being driven into despair, we created a National Coordination Council to dissolve the parliament which voted to support the anti-entrepreneurial and anti-national Tax Code. We delivered our demand to the president.
We will not step back.

With this address we not only want to express our feelings of despair, but to ask you for your support and help in explaining to President Viktor Yanukovych that this Tax Code must be vetoed.
We believe that this assault on freedom in one part of the planet is a challenge for the whole world.
The Council of National Coordination.

People First comment: Anybody who thought that democracy in Ukraine had died with the apparent failure of the Orange Revolution should think again. This call to protest is a spontaneous reaction by middle class entrepreneurs who see their very livelihood under threat from unjust and corrupt legislation. To understand the root of this situation we need to look at development of the tax collection system in Ukraine.
In the mid 1990s the government passed a law that prevented all business from using cash to make even the smallest of payments. At the same time members of the same government set up cash laundries where businessmen could buy black market cash at a commission rate of between 2 and 7%. This forced a sizable part of small and medium sized businesses into the shadow economy and created a massive cash generator for those in power as the commissions certainly did not go to the state budget. What was worse is that many of the laundries work in ‘partnership' with the government thereby creating a ring of financial control to fleece entrepreneurs.
At the same time the Tax Police were formed purportedly to clamp down on illegal business ventures. In reality cooperation between the laundries and the authorities created a massive network of corruption that was actually supported by legislation. This system became the status quo and even led to officials providing commercial counselling to companies on how best to mitigate the impact. In other words the authorities used their unique position as legislators to create a wholly immoral and corrupt system. The principle architects of that system and the legislation that supports it are people who have achieved the position of Prime Minister of Ukraine.

In advance of this new Tax Code parliament on the initiative of the government passed legislation that will enable legalised capital flight. The financial aristocracy are now able to move money offshore to safe havens without fear of punitive taxation or the previous time consuming licensing.
What the Prime Minister is now proposing in the new Tax Code is that the Tax Police be given powers that take them above the law. If this legislation is signed by the President the Tax Police will to all intent have the power to not subjectively assess the amount of tax they want from each company irrespective of the accounting records and to seize assets without recourse to the courts in the event that the company disputes the tax claim or refuses to pay. The only defence for business owners will be to bribe the tax police and this is exactly what this law is designed to achieve. This is tantamount to legalised corporate raiding by the State.
The new Tax Code can only be described as state sponsored crime and clearly explain the basis of this call to national protest. The intent of the government is illustrated by the fact that whilst they sought guidance from the tax committees of European Business Association and the American Chamber of Commerce in Kyiv virtually none of their recommendations were taken into account in the final version of the law. Furthermore the law was discussed in Parliament without a legal quorum where around 100 deputies voted illegally on behalf of 296 in order to get the law passed. There was no public discussion as required by Ukrainian legislative procedure and no second reading.
What will be the most likely impact of this legislation?
Under the combined pressure of the tax police coupled with the lack of lending by the banking system small and medium sized enterprises will simply collapse throwing thousands out of work, increasing the pressure on the virtually nonexistent social security net and generating yet more poverty and hardship.
The nation will be thrown into chaos with potentially thousands taking to the streets and in strikes and stoppages all over the country that the authorities will be unlikely to contain without the use of force.
Tax revenues will fall as a result of the chaos, the collapse of companies and the increase in bribes paid to the tax police
More of the economy will move into the shadow. It is already estimated by the World Bank at 50% of GDP, Ukrainian experts predict that it could rise to between 70 and 75% drawing into serious question the ability of the State to function at all
The Tax Police will build warehouses full of seized business equipment but there will be nobody to buy it and therefore no income for the State
All that this legislation will achieve will be to further undermine the SME segment of society and enflame a vast percentage of the population. At present the Ukrainian SME sector contributes 16% of GDP but attracts 85% of tax police interest. In EU countries the SME sector contributes an average of 57% of national GDP and no tax police are required.
This legislation is a step too far; it is an affront to democracy. It is morally wrong, criminal in its intent and should be resisted to the full by the people of Ukraine and by the international community.
We fully understand that the current tax laws are ineffective and need to be revised but this is not the solution. We appeal to the opposition not to be involved in populism but to offer concrete draft laws aimed at addressing this serious national issue.
We appeal to the President to veto what is a grossly unfair law that will seriously damage a key sector of the economy of the nation and to call to account its architects as their intent in our opinion is not in the national interest.
We further appeal to the European Union and the governments of the G20 countries to recognise that the international financial and offshore corporate systems are being manipulated in Ukraine in order to launder massive amounts of stolen money whilst at the same time poverty is now a reality for 78% of Ukraine's population.