Tax com­plaints dom­i­nate 2016 work of om­buds­man

Kyiv Post - - Business - BY JOSH KOVENSKY [email protected]

Al­gir­das Semeta can’t de­clare vic­tory yet in im­prov­ing Ukraine’s busi­ness cli­mate, but he is rack­ing up vic­to­ries.

The Lithua­nian Semeta has for two years been Ukraine’s busi­ness om­buds­man, di­rect­ing an in­ter­na­tion­ally fi­nanced and state-en­dorsed team that re­solves dis­putes be­tween gov­ern­ment and the pri­vate sec­tor.

Semeta has re­cov­ered nearly Hr 6 bil­lion ($220 mil­lion) from the gov­ern­ment on be­half of ag­grieved busi­nesses in 2016 alone, ac­cord­ing to a re­port re­leased April 6.

But there are lim­i­ta­tions, given the ex­tent of Ukraine’s en­demic cor­rup­tion and his mainly ad­vi­sory pow­ers. In the lat­est re­port, cov­er­ing 2016, it comes as no sur­prise that al­most half of the 868 com­plaints re­ceived were about tax is­sues.

“Our rec­om­men­da­tions should also lead to sys­temic changes within the (tax) ser­vice,” Semeta said, adding that Ukrainian au­thor­i­ties “mostly ad­dress our rec­om­men­da­tions on a case-by-case ba­sis.”

Semeta wants to see the of­fice go deeper in help­ing gov­ern­ment of­fi­cials act in ways that trig­ger fewer com­plaints. Of­fi­cials, he said, need to put “more em­pha­sis on the im­ple­men­ta­tion of our sys­temic rec­om­men­da­tions.”.

Al­most 8 in 10 com­plaints come from Ukrainain busi­nesses rather than for­eign-owned ones.

The busi­ness om­buds­man coun­cil is funded by a con­sor­tium of 11 coun­tries through a Euro­pean Bank of Re­con­struc­tion and De­vel­op­ment-man­aged ac­count, to the tune of TK an­nu­ally. It em­ploys 23 peo­ple in its Kyiv of­fice with an an­nual bud­get of $1.6 mil­lion.

Re­cal­ci­trant of­fi­cials

Ihor Chereshyn­skyi, an Odesa candy im­porter, is among those who sought help from Semeta. Chereshyn­skyi said he was as­sessed an ex­tra Hr 10,000 ($370) in tax pay­ments that he didn’t owe.

“It’s not about the amount of money, it was the prin­ci­ple of it,” Chereshyn­skyi told the Kyiv Post, not­ing that due to the de­val­u­a­tion of the hryv­nia, the amount he was owed changed from $1,300 to $370.

Chereshyn­skyi spent three years in court fight­ing the tax au­thor­ity over the is­sue be­fore he filed a com­plaint with the om­buds­man. The team re­solved the is­sue and got his money re­turned within a week, Chereshyn­skyi said.

The candy im­porter was pleased, but also wants deeper re­sults.

“The sys­tem works so that who­ever made the de­ci­sion is not pun­ished,” he said,. He said he wanted tax of­fi­cials who took the money to be fired “to set a prece­dent,” but were not suc­cess­ful.

Semeta is nonethe­less satisi­fied that most of his rec­om­men­da­tions are be­ing im­ple­mented by gov­ern­ment, while more busi­ness­peo­ple are turn­ing to his team for help.

The of­fice has also signed me­moranda of co­op­er­a­tion with five sep­a­rate Ukrainian state agen­cies over the past year: the Min­istry of the En­vi­ron­ment and Nat­u­ral Re­sources, the Kyiv City State Ad­min­is­tra­tion, the Na­tional Po­lice, the Na­tional Agency for the Preven­tion of Cor­rup­tion, and the Na­tional An­ti­Cor­rup­tion Bureau, or NABU.

Semeta said that in cases where oli­garchs or other pri­vate busi­ness­peo­ple ap­pear to be ma­nip­u­lat­ing gov­ern­ment agen­cies to pres­sure ri­val busi­nesses, he sends the cases to the NABU. He said that there were around 10 such cases, call­ing some of them a “work in progress.”

Po­lit­i­cal foot­ball

Much of the om­buds­man’s work is gen­er­ated by com­plaints con­cern­ing the State Fis­cal Ser­vice. The re­port said that 49 per­cent of com­plaints re­ceived were tax re­leated.

“We get some com­plaints that we think we should not get,” Semeta said, adding that VAT re­funds and the im­proper use of the elec­tronic tax ad­min­is­tra­tion rank near the top of com­plaints from the busi­ness com­mu­nity. From 2015 to 2016, the amount of fis­cal ser­vice-re­lated com­plaints more than dou­bled, from 206 in 2015 to 426 in 2016.

“I think if the tax au­thor­i­ties acted prop­erly, such com­plaints would not come to us,” he added.

The State Fis­cal Ser­vice has been a po­lit­i­cal foot­ball, with dif­fer­ent po­lit­i­cal fac­tions jock­ey­ing for con­trol over the in­sti­tu­tion as the West­ern busi­ness com­mu­nity and for­eign lenders call for it to be dis­man­tled and re­built into an en­tirely new ser­vice. Some want tax col­lec­tion split from cus­toms.

And many peo­ple be­lieve the re­cent es­tab­lish­ment of an on­line VAT reg­istry will in­crease trans­parency and re­duce cor­rup­tion in this area.

Much of the crit­i­cism of the or­ga­ni­za­tion has fo­cused on its re­cently de­posed chief, Ro­man Nasirov, who is cur­rently un­der in­ves­ti­ga­tion by the NABU for al­legedly giv­ing for­mer par­lia­men­tar­ian Olek­sandr Onyshchenk­o il­le­gal tax ex­emp­tions. He has been re­moved as the Fi­nance Min­istry seeks to re­store its con­trol over the ser­vice.

Semeta said that he served on a se­lec­tion com­mit­tee for the tax chiefin 2015.

“I voted for a dif­fer­ent per­son,” the om­buds­man said, grin­ning.

But Semeta noted that the State Fis­cal Ser­vice com­plied with most of the om­buds­man’s rec­om­men­da­tions.

“I think that (Nasirov) sent a sig­nal through the sys­tem so that ac­tu­ally au­thor­i­ties at the lo­cal level, the re­gional level, have to re­ally care­fully ad­dress the is­sues that we sub­mit,” Semeta said.

Nasirov lauded the busi­ness om­buds­man in a De­cem­ber in­ter­view with the Kyiv Post. When asked why there were near-con­stant com­plaints against his of­fice, Nasirov said, “you need to talk to the busi­ness om­buds­men to un­der­stand that we re­solved 80 to 85 per­cent of those com­plaints that they re­ceived”

But Semeta said that while Nasirov had re­solved is­sues on a case-by­case ba­sis, there were few sys­temic shifts. “They could do much bet­ter in sys­tem­i­cally chang­ing the of­fice” to im­prove ac­count­abil­ity, he said.

Lo­cal of­fices

More com­plaints are com­ing from mu­nic­i­pal­i­ties, a shift that Semeta calls a “side ef­fect of de­cen­tral­iza­tion.”

“As lo­cal au­thor­i­ties get more and more pow­ers, and if those pow­ers are not prop­erly used, that cre­ates prob­lems for busi­nesses, and busi­nesses have started to com­plain more about the ac­tiv­i­ties of lo­cal au­thor­i­ties,” he said. He added: “In each re­gion which I visit, the first ques­tion is, ‘when you will cre­ate a lo­cal of­fice?’”

Semeta said that the or­ga­ni­za­tion got its lat­est fund­ing ap­proved three weeks ago. It does not in­clude fund­ing for re­gional of­fices.

How­ever, the om­buds­man’s work will be ex­tended for an­other three years, with fund­ing to hire more in­ves­ti­ga­tors.

While the busi­ness om­buds­man taks up the need for trans­parency, es­pe­cially in Ukraine’s pub­lic sec­tor, Semeta re­fuses to say how much he and his staff are paid.

Semeta, who served as Lithua­nia’s fi­nance min­is­ter from 1997 to 1999 and rom 2008 to 2009, said that when he first ar­rived, Ukraine re­minded him of Lithua­nia in the 1990s. He added that in spite of im­pres­sive achieve­ments, more work needs to be done – and faster.

“That ex­plains why the pop­u­la­tion is not ex­tremely happy about the state of re­forms,” Semeta said. “But for me the most im­por­tant thing is that the di­rec­tion doesn’t change.”

(Kostyan­tyn Ch­er­nichkin)

Ukraine Busi­ness Om­buds­man Al­gir­das Semeta speaks at a Kyiv Post CEO Break­fast on June 17. Across from Semeta is ex-State Fis­cal Ser­vice Chief Ro­man Nasirov, who Semeta voted against while serv­ing on a com­mit­tee that se­lected Ukraine’s tax chief....

(Volodymyr Petrov)

Ro­man Nasirov, chief of Ukraine’s State Fis­cal Ser­vice, sits dur­ing a hear­ing at the Kyiv Court of Ap­peal on March 13 as a sol­dier stands guard in the fore­ground.

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