The View From Here: Hryts and Taxes

By Volodymyr Kish

There is growing turmoil in Ukraine of late caused by the government’s recent efforts to introduce a new tax code.  A protest tent city sprung up on Kyiv’s central square, the Maidan, several weeks ago, while widespread demonstrations have spread to all the far-flung corners of a financially hard-pressed Ukraine.  Even in President Yanukovich’s Party of Regions strongholds of Donetsk and Dnipropetrovsk, the natives have been showing their anger and displeasure with the government’s latest attempt to reform a chaotic tax system.  It is interesting that this issue has broken down the traditional regional and linguistic divides in Ukraine, and united an embittered small but growing middle class from Lviv to Luhansk.

All this is a direct consequence of the IMF’s recent bailout of Ukraine’s tottering economy, a bailout that came with some stringent requirements that the Ukrainian government get its financial house in order.  The intent of IMF’s conditions were, of course, standard for this type of economic rescue package; the Ukrainian government’s response, sadly, but not unexpectedly, was a graphic demonstration of its inability after two decades of independence to manage a democratic, free market economy.

No one disputes that tax reforms were and are necessary.  What has embittered so many people is the fact that the government, rather than going after the oligarchic elite who hold most of the country’s wealth but pay little or no taxes, have focused their proposed reforms on squeezing more tax revenue from the country’s small entrepreneurs and businessmen.  As one political commentator put it, this is a more modern version of Stalin’s “dekulakization” policies from the 1930s, aimed at destroying the entrepreneurial middle class in Ukraine. 

Further, the government continues to fail in seriously addressing the populist but financially unsupportable subsidies and entitlements that are a prominent feature of election time commitments, but are patently out of synch with the country’s ability to pay out of existing tax revenues.  Rather than make the hard decisions necessary to put a balanced budget in place, the Yanukovich government has slapped together a patently unfair series of tax measures that favours the wealthy few and imposes a disproportionately unfair tax burden on small and medium size businessmen, the one sector of the economy that is most crucial to Ukraine’s further evolution towards a Western-style free market economy. 

Appropriately, these latest potential victims of Yanukovich’s banana republic policies are mad as hell and have been letting him know that they are not going to take this affront lying down.  The government responded in its usual ham handed way by trying to block protestors from around the country from coming to Kyiv and the Maidan to demonstrate.

As is usual when there are significant developments in Ukraine, I turned to my trusted political mentor and advisor, my cousin Hryts from Pidkamin, a small town in Western Ukraine renown for the huge boulder precariously threatening the inhabitants from its perch on a hill, as well as for the exceptional quality of its locally grown garlic and horseradish.  Hryts was in somewhat of a foul mood owing to the fact that he was having trouble selling his bumper crop of garlic due to competition from cheap garlic imports from China.

“It’s a sacrilege! How can they allow the Chinese to export their poor excuse for garlic to our country. Their pitiful cloves are as close to being garlic as Yanukovich is to being a Ukrainian patriot!”

“Now, now Hrytsiu” I implored, “I didn’t call you to talk about garlic.  I want to know what you think about Yanukovich’s new tax code.”

“Bah!” he snorted.  “Don’t talk to me about taxes.  That tax code has nothing to do with taxes.  It’s legislated extortion, no more, no less.  While his oligarch buddies squirrel away their billions in off shore bank accounts in Cyprus and the Virgin Islands, he wants us small producers and businessmen to pay through the nose so that they can enjoy their caviar, Mercedes and pricey long-legged lialkas (dollies).  I wouldn’t mind paying real taxes if I knew that they were going to be used for the good of the country and its citizens.  But this is more of the same stuff that has been going on for centuries – the real workers and creators of wealth are taxed to death so that the wealthy Polish magnate, or Russian Tsarist noble or Soviet apparatchik or modern Donetsk robber baron can enjoy the good life! I think the last time Ukraine had a government worthy of paying taxes to was during the reign of Yaroslav the Wise in the 12^th Century.”

“So how would you restructure the tax system?” I asked naively.

“You really have borscht for brains, don’t you!” he smirked. “It’s not the system – it’s the people running the system.  Get rid of the banda (gang) in power and most of your problems will go away.  By the way, you wouldn’t perhaps be interested in importing some high quality garlic would you?”