Friday, April 1, 2011

Why Ukrainian entrepreneurs are this year's most likely 'April Fools'

Late in November 2010 thousands of Ukrainian private entrepreneurs went out to protests against the new Tax Code, which would severely increase tax burden on small and mid-size businesses by wrecking the simplified tax system. While the rallies in November were the largest public protests since 2004 Orange Revolution (hence, the nickname ‘Maidan-2’ or ‘Tax Maidan’), this was not the first time entrepreneurs have come together to defend their rights.
Tax Code protests on Maidan Nezalezhnosti in Kyiv, Ukraine. Photo by REUTERS
In 2009, they have already organized to protest Tymoshenko’s controversial Decree # 1118. Adopted in the midst of economic crisis, it threatened the existence of private entrepreneurs paying a unified tax by causing them to lose clients that received VAT compensation. 

Curiously, then most civil society organization established to defend small business’ interests haven't actively reacted against the regulation. Instead, a self-organized initiative group that launched action sprang up from an unaffiliated entrepreneurs’ discussion on an online forum of Kyiv newspaper Private Entrepreneur, which attracted over 5000 comments from businessmen of various regions and resulted in street activities that ultimately lead to the abolition of the Decree # 1118 [UKR].

In Ukrainian context such situation was not surprising. After all, in our country informal civic initiatives (not constrained by the Soviet-style bureaucratic structure, intermingled relations with the state, or agenda imposed by donors) can often react quicker, mobilize resources better, and defend interests of a particular group more effectively than the formal civil society organizations established for this particular purpose.

However, when in 2010 the passage of new Tax Code threatened the ability of thousands of small and mid-size business owners registered as private entrepreneurs to earn their livelihoods, the action was more popular and coordinated. This time more newspapers opened special online forums [UKR], formal business associations alerted their members, and entrepreneurs themselves spread the word around prompting mass protests in Kyiv. Reflecting the changed press environment in Ukraine, perplexed mainstream media practically ignored thousands of people protesting on country’s main square, while social media played the crucial role in covering the demonstrations (see my timeline of events on GV).

The success of these protests was dubious: although they had initially lead to the Presidential veto of the Tax Code, in the end it had only delayed bill's eventual passage by the Parliament and the consequent effects on the small and mid-size businesses in Ukraine. The government, however, labeled its dialogue with entrepreneurs ‘successful’, while quietly dismantling protesters’ tent city at dawn (see reactions of Ukrainian blogosphere on GV).

 Police controls dismantling of tax protesters' tent city. Photo by Ukrayinska Pravda

In any case ‘Tax Maidan’ has clearly achieved one thing – it demonstrated ability of entrepreneurs from different regions and business areas to come together in times of crisis. The next logical step would have been to institutionalize in order to continuously defend the interests of Ukrainian small business. Nevertheless, after long debates, the entrepreneurs’ movement seemed to repeat the fate of many similar initiatives in Ukraine that were strongest during their protest and demonstrations stage, managed to achieve their first practical goals, but then fell apart and lost effectiveness.

When I asked one of tax protest activists what hampered ability of entrepreneurs’ movement to get off the ground, he replied that it must have been people’s instinctive aversion toward any ‘voluntary’ associations inherited from the Soviet times. After all, in the words of our sociologists, most Ukrainians still believe any organizational activity is a privilege allowed or granted by government bureaucracy or international organizations, and not a right of individuals.

Moreover, the strong entrepreneurs’ movement is obviously against the interests of our government, which treats any sign of social activism with suspicion (to say the least), and has recently carried out a series of repressions against ‘Tax Maidan’ activists [RUS].

The statistics also remain grim – thousands small businesses have already disappeared [UKR] since the beginning of 2011, and up to 200 thousands more are going to close [UKR] after remaining norms of the Tax Code become effective on the 1st of April. And although some participants of the ‘Tax Maidan’ try to remain active, if Ukrainian small business fails to unite and act quickly, we are likely to see most of enterprises ‘die’ in the nearest months and yet another originally successful civic initiative dissipate without achieving any long-term results.
Most recent tax protests in Kyiv (March 2011). Photo by civic organization 'Vidsich'

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