Ukranian Tax Chief Accuses First Deputy Premier Of Tax Evasion

Tatiana Smolenska, Tax-news.com, Moscow

06 September 2000

If Russia is a hotspot for rampant tax evasion, then it goes without saying that the Ukraine may find that old habits die hard. This week the Ukraine's tax chief Mykola Azarov accused the First Deputy Prime Minister for the fuel and energy complex, Yuliya Tymoshenko, of being behind various schemes in the fuel and energy complex to avoid paying taxes to the state budget.

In an interview with Ihor Storozhuk on Ukranian television, reported by BBC Monitoring, here is what Mr Azarov, Chairman of the Ukranian State Tax Administration, had to say:

[Q] Where is our money?

[A] We have been dealing with the United Energy Systems of Ukraine corporation [UESU, formerly headed by the current first deputy prime minister in charge of fuel and energy, Yuliya Tymoshenko] since 1996. The scheme which was used to transfer money abroad is very well known to us. It suffices to recall the so-called United Energy International company, etc. etc. To my deepest regret, following the example of the UESU, a number of other structures transferred money abroad using that same scheme. It seems to me, however, that the time has come to dot the "i"s and cross the "t"s regarding both the UESU corporation and others, which in fact are copying the same schemes, if only on a smaller scale.

[Q] As far as I know, at some time the State Tax Administration, that is, its relevant offices, presented a claim to the UESU for unpaid taxes. Did the corporation pay up?

[A] No, the corporation did not pay, and the talk is quite difficult. Why did it not pay? Our demand for the corporation to pay was more than once considered in different arbitration courts, and various contradictory rulings were made, but nevertheless we proved that our conclusions had been correct. The last rulings made by arbitration courts, including that of the Higher Court of Arbitration, confirmed the competence of our conclusions. But this corporation behaved in quite a cunning way regarding the state. In fact, all its property, assets, cash, etc. were transferred into the ownership of other companies, of other firms, etc. etc. What the UESU has is only debts. I nonetheless hope that we will manage to return at least part of the money owed by the UESU and by a number of other companies associated with it, because the UESU is a whole complex of various structures, it is a system which had a huge turnover. We hope that at least part of the damage inflicted on the state by the company's activities will be compensated.

[Q] You have said that this is not the only structure in the power sector that did not pay taxes, thereby taking money from the budget. Do you think this money will be enough for, say, granting tax privileges to bookpublishing in Ukraine, as you mentioned in our previous talk in this studio. Can you compare these figures or at least their levels?

[A] You know, I have reiterated this more than once that if we sort things out in our economy - and this is the policy that is being permanently and decisively pursued by the president [Leonid Kuchma] - then we will definitely fill wide gaps in our budget and will solve a number of social issues as well. Bookpublishing, which you have mentioned, is just a small portion of the issues that can be tackled. I can give you the scale of the figures. This is about 2-2.5bn dollars. These are the funds that are being withdrawn from taxation using various schemes, that are being withdrawn from economic turnover in our country. [There are] tens and hundreds of various structures dealing in smaller volumes than the UESU of course, being smaller in size and not being so conspicuous in our oil and gas market or in our power industry, etc. But if we straighten things out, we will manage to return those funds to the budget, to return them to our people. This way, a whole number of problems can be solved. Take, for instance, the system of distribution of accounts, which was criticized by the president. Where did it lead to? It led to the state budget not receiving those funds. I have already quoted the figures.

[Q] Where are the funds going to then?

[A] They began to be used for particular settlements, to be channelled, under direct instructions, for settlements for, say, gas with the [international energy company] Itera, and for other purposes. Particular standards have been set, like the allocation of funds to meet urgent needs, say, 100 per cent for the [national nuclear energy company] Enerhoatom. What does this mean? This means that Enerhoatom stopped paying taxes to the budget. Ninety per cent [were allocated] to meet the urgent needs of a number of nuclear power plants. So what do we have then? Everybody has to pay taxes, including those with low incomes. For instance, income tax. A family that can hardly make both ends meet nonetheless is paying income tax, which is being deducted from its pay. So, a low-income family has to pay its kopecks to support the budget, defence, education, science and culture, while a highly profitable enterprise is being exempt from paying taxes. On what grounds? Tax examption can be granted by law alone.

[Q] You have said that this is being done according to someone's direct instructions. Can you say according to whose instructions it is being done or at least what is the rank of the person who can issue such instructions?

[A] These are direct instructions by the first deputy prime minister in charge of the fuel and energy complex, [Yuliya Tymoshenko]. I had a serious and tough talk with her, and I told her that I would not tolerate enterprises not paying money into the state budget. Of course, she began putting forward particular arguments. Of course, we are aware of the need to get ready for winter but we are also aware of the need to pay money to the state budget, moreover, to the state. And then the government can dispose of these resources. The main thing is that the budget receives them. We have the goverment to decide in which way they will be disposed of - either for preparations for winter or for teachers' or doctors' wage repayments or for some other purposes. We have the law on the state budget, which needs to be complied with. This is why I believe that the time for such voluntary, in quotes, decisions must pass by, and we must strictly comply with the law on the state budget and with other laws currently in force, which enable us to work.

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