From year to year Belarus takes the very last place in ‘Paying taxes’ category of the ‘Doing Business’ survey of the World Bank. We hold 183rd position among 183 countries. What is being done by the Ministry for Taxes and Levies for improvement of tax climate? What new will appear in tax legislation this year? These and other questions were answered by Larisa Kondratova, Deputy Chairwoman of the Minister for Taxes and Levies within the framework of ‘The Letter of the Law’, “Argument” Law Group senior partner Denis Aleinikov’s program.

Total team position of the country in ‘Doing Business’ survey is growing every year. Last year, as was pointed out by the World Bank, we moved from 82nd to 58th place as regards level of business climate.    At that, positive dynamics are going on in all criteria analyzed by the World Bank. But not in ‘taxation’  criterion. Here, from year to year we hold the last, 183rd position.  Why? Was the Ministry for Taxes and Levies doing nothing all these years for liberalization of tax legislation?  Or our reforms were not properly assessed by the World Bank experts?

Of course, one can’t say that we are not doing anything or that our system of taxation is ridiculous. In recent years we are actively improving our tax system as a whole and its legislation in particular.  We are doing this purposefully and in accordance with the plan. This year we have worked out Special Part of the Tax Code, which reflects all taxes and elements related to taxation. If one looks at the structure of this Special Part he will see that it is built according to the manner practically all European countries work.       

Methodology of the World Bank doesn’t take into account all criteria of ‘friendly nature’ of the tax system, for example, convenience of filling the tax declaration. Let me give you quite an objective fact:  it’s much simpler to fill our tax declaration than the one, for instance, in Russia or Germany. For example, in Germany a tax declaration on profit looks like a book, in Kazakhstan in has 70 pages. Our declaration consists of eleven pages. And the method of calculation of the profit is simpler. Unfortunately, this is not taken into account during preparation of the above rating.       

Let’s look at the situation with the eyes of a tax-payer: for him it’s absolutely not important what place is held by his country according to ‘Doing Business’ rating, the most important thing for him is simple and understandable calculations of taxes. And today accountants who work with declarations note that we quite seriously simplified   methodology of calculations of taxes.   

What other changes were carried out in the tax system – progressive for tax payers but not assessed by the World Bank during preparation of ‘Doing Business’? 

After adoption of Decree No. 119 on simplified taxation system more than 70 000 of individual businessmen and small enterprises started to work. Criteria were considerably widened: a businessman could have earnings up to 3.5 billion roubles and work according to the simplified system. Besides, he didn’t have to pay for his tax patent before he earned money. The enterprises where up to 15 people work had the possibility not to do accounting – in the classical sense of this term. This allowed them, in principle, not to employ an accountant.           
We pay much attention to innovation technologies. The enterprises which work in the High-tech park pay only low rate income tax. 
The effect is quite considerable: to the High-tech park we attracted people who were earlier trying to go abroad, and now they work mainly for export and that brings foreign currency. That shows: getting taxes is not the only purpose. We should develop the system which would stimulate certain directions. That’s how any country acts. Techno-parks are being created in our country, also with the system of tax-breaks.      
One can’t but remember Decrees No. 1 and 9, adopted for stimulation of production development in small towns and rural areas, as this is really important. There is a change for better in the countryside, businessmen and enterprises started to register themselves.  All this happened because considerable tax privileges occurred as regards general system of taxation and tax rate for enterprises using simplified procedure became two times as less.   
The World Bank while preparing ‘Doing Business’ survey didn’t regard these tax privileges as decrease of tax load though the benefit from them for taxpayers is huge.

Each project has its own key indexes of effectiveness fulfilling which one can reach progress of this project as a whole. There are also such indexes of effectiveness in ‘Doing Business’. Have you ever tried to work on concrete indicators which make up the rating?  For example, in the last World bank rating it was mentioned that we have 107 tax payments a year. What has been done to decrease that number?

In 2009 the number of tax payments was decreased. But the most important, in my opinion, was the changeover to quarterly payments of practically all taxes which made possible to decrease the number of payments three times. VAT is still to be paid monthly, but small enterprises are allowed to pay it quarterly.

Besides, from year to year we decrease the quantity of taxes and payments themselves. For example, in 2000 we had six circulating payments, but now we have deleted the last one. We cancelled these payments gradually  because it’s impossible to delete all of them at once – there should be some sources of money inflow to the budget. Besides, in tax system as in economy in general, there can’t be any sharp and rapid effect. All changes to tax system should be introduced stage by stage.  
This year we will continue decreasing of payments. We are going to cancel dues for development of territories which are paid from the profit.  From this year we cancelled payment for acquisition of transport vehicles, sales tax. Probably, service tax will be cancelled as well.    
Besides, we have one more important issue to settle – that is changing of VAT compensation procedure towards liberalization, first of all during capital investments. 

Tax legislation is not something frozen, it is changing depending on requirements of a country and payers.  

Last year in ‘Doing Business’ survey in the category ‘Time Required for Tax Payments’ we had 901 hours. Will this index be improved in the next rating?

I absolutely don’t agree with this figure but in any case this index will improve as the number of taxes decreased as well as periodicity of their payments.

And what has changed in the category ‘Total Tax Rate’ (in the last rating it was 99.7% of the profit)?

From January 1, 2010 we have cancelled circulating tax which was 35.4% which, in its turn, will make possible to reach 51% for the total tax rate.    

What place, in your opinion, will Belarus hold in the rating this year, taking into account all that has already been done and on condition that everything planned will be carried out?

If we fulfill what we planned we will considerably move forward in ‘Paying taxes’ category of ‘Doing Business’ survey.   
I think, we can pretend to 35th  – 40th position. That is very important for positioning of business and investment climate of our state. That is one thing - to be at the 183rd place in ‘Paying taxes’ category and pretend to investing, and quite another – to do the same, being in the 40th position, you must agree with this.

What changes have taken place in the system of the Ministry for Taxes and Levies after adoption by the Head of State of Decree No. 510  in the field of checking of private entrepreneurship? What has changed in the practice of estimation of amount of responsibility?

Adoption of Decree No. 510 has changed approach to controlling activities of not only tax bodies but also all controlling bodies. The Decree is aimed first of all at creation of more favorable tax climate in our country.
It should be noted that presently a wrong deed is not considered an administrative offence, if the amount of damage has not exceeded one percent of the amount of taxes paid. This is important especially if we take into account that mistakes can be unintentional.

Moreover, after coming into force of the Special Part of the Tax Code it was established that in case of double interpretation of the issue of absence or presence of an offence the problem should be settled in favor of the payer. And there were already cases when this norm was practically applied.    
The improvement of the control activities goes simultaneously with liberalization of the Administrative Code itself which envisages penalties for certain offences. Corresponding changes have been introduced in ‘Administrative Offences Code' on February, 23rd and really much has changed.
Administrative responsibility has been canceled for the following: intermediate commercial activities without license, for acquisition, storing, transporting and sale of goods without documents confirming their quality, for refusal to sign the act of a tax check-up report, for illegal awarding and paying of bonuses, for violation of the procedure of supply, stock-taking,  transporting and sale of materials.  Penalties for violation of procedure of payments between legal entities and individual businessmen have been decreased to one hundred basic values. One can say, we are moving towards liberalization and adequacy of a penalty to the offence committed by a businessman.     

Of course, there’s no country where people like to pay taxes and that’s understandable.  But it’s impossible to do without them, as this money fills the state budget.  If we look at the dynamics for the last years, we can see that there was a decrease of total sums which we collect as a result of controlling activities and it is decreasing every year. This shows that our tax payers are mainly conscientious people.  

Many foreign investors  point out that our tax legislation is very complicated and it’s not so easy to understand  how to pay taxes correctly. What is to be done with such tax payers? Maybe we should introduce ‘the right to mistake’ and if one makes it for the first time he should be just warned, but if he repeats it a penalty will be imposed?  They have something like this in China: the first mistake is attributed to complexity of Chinese tax legislation and they give the first and the last ‘Chinese warning’, but if the mistake is repeated they impose sanctions and very strict ones.

We try to carry out considerable explanatory activities. For the first time we quite often just warn natural persons, we may even refrain from drawing-up a protocol for illegal conducting of a business  and explain that one should be registered in tax bodies and that taxes are not very high. One should not force people but cultivate high tax culture in them. And this process will take not just a year or two. A person should understand that paying taxes is a must: you can’t live in a society and give it nothing in return. Otherwise, it will look like he lives at the expense of others.     To our satisfaction we observe that many of those people whom we tried to ’convince’, got registered in tax bodies  and started to pay taxes. That means, our educational activities proved to be effective.    

And what will you say about enterprises, legal entities? 

When a new accountant starts to work at an enterprise or some other official, who deals with taxes, and when he realizes that something is wrong in book-keeping, we consult him and explain how he can correct it on his own. No administrative offence is stated, the accountant just pays the remaining amount of the tax and a penalty.  

But it’s quite another matter if we started to check and found some violation. According to ‘Administrative Offences Code’ we don’t have a right to warn – we must register this violation entailing corresponding administrative responsibility. 

And do controlling bodies really need the right to warn a violator?

I think they do. Quite often it is clear the payer simply got confused. In our opinion there should be certain changes to ‘Administrative Offences Code’ which will make possible to use warning as some kind of administrative responsibility of a legal entity for tax violations. This proposal was included in our plan of further liberalization.
So far, we have not put this proposal forward to our legislative bodies, but it had been previously discussed. I think, this is a reasonable proposal. No doubt, such measure of responsibility should be justified.  For example, we can’t talk about warning if direct intention to violate set rules is evident, organization of pseudo-business activities, etc.

Surely, you analyzed international law enforcement practice. Can one say that in comparison with European and other countries we have rather strict measures of responsibility for tax violations?

One can often hear that in civilized countries after checks businessmen are asked to pay taxes while in our country they are unquestionably fined. Nobody asks after the checks, otherwise, what kind of a tax body would it be? There should be no asking – who would ask to obey the law? But we do not bring to responsibility – just request to pay the remainder during other activities, for example, in the course  of monitoring of enterprises and paying of taxes by them.          

If  violations are noticed during checks, then our measures are rather strict: criminal responsibility is envisaged practically in all countries.  For intentional violation of tax legislation up to seven years of imprisonment is envisaged in our country. The same is in Estonia, and in Germany, France, Bulgaria this term will be up to ten years. In Holland they can imprison a person for a year even without trial.  In China for non-payment of taxes or unjust  demand of return of VAT life imprisonment and even death penalty is envisaged.  
Therefore, our legislation on the whole corresponds to international norms. I wouldn’t say our tax bodies act more roughly than they usually do elsewhere in the world.

Larisa Kondratova answers questions of the users of portal.