If the wealthy in Ukraine continue to pilfer the nation’s riches and escape paying their fare share of taxes, they shouldn’t expect compliance from citizens who are struggling to make ends meet – including millions from the beleaguered middle class to poverty stricken villagers.
A case in point is the tax declaration made public this week by President Viktor Yanukovych.
As sources quoted in a front page Kyiv Post story this week by Yuriy Onyshkiv point out, it is simply not credible that Yanukovych earned about $2 million selling the rights for books he allegedly authored – that, by the way, nobody is reading – to an obscure Donetsk publishing house. And if Yanukovych is truly donating to charity his book fortune – which, by the way, accounts for 95 percent of his 2011 income – then he clearly is unable to explain how he can afford to live in luxury at the Mezhyhiria estate north of Kyiv.
In the past, he has explained that he only owns a small chunk of vast and guarded multi-million-dollar investments, that ownership of the rest of it is financed by others. He has so far refused to reveal the beneficiaries. Journalists have uncovered a web of offshore companies involved.
In a nutshell, the luxurious lifestyle of Ukraine’s president is supported by sources concealed by offshore companies and havens. Some would describe these relationships as farcical. In our view, it smacks of massive conflicts of interest and sets a poor example for a leader. Yanukovych isn’t alone at the top. In past briefings with journalists, Presidential Administration Chief Serhiy Lyovochkin has admitted that he gets much of his income from a Cyprusregistered company as dividends. He has declined to reveal what activity this Cyprus company is involved in, as well as what and where its source of income derives. However, given that he declares this income as “dividends,” he is eligible to pay a 5 percent tax rate on this income rather than the 15-17 percent rate average citizens pay.
If Ukraine’s lawmakers and their oligarch backers – all notorious for hiding their incomes offshore – continue dragging their feet on closing the offshore doors, perhaps all of Ukraine’s citizens should set up Cyprus accounts and declare their taxes as Lyovochkin does. Most major businesses and oligarchs register their businesses in offshore havens, often minimizing their taxes through schemes that may very well be legal but which also exacerbate Ukraine's fiscal problems. So far, no political leaders are willing to rise about their self-interest and the selfinterest of the nation's wealthiest to end these cozy arrangements. Hence, about 40 percent of the economy remains uncounted – with much of the wealth kept abroad.
Budget revenues need to be increased. Income must come out of the shadows. But this will only happen when those at the top show their sources of income transparently, pay their fair share of taxes and introduce reforms that increase the tax base making it convenient for all to pay.