A farce

Kyiv Post - - Opinion -

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.

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