The findings of a business environment survey conducted by the International Finance Corporation reveal that about 70% of managers of Belarusian small and medium-sized enterprises regard tax administration as complex and overly burdensome procedures. Among the problems identified are its contradictory nature, complexity, and instability

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Belarus currently has three taxation systems:

• Common taxation system;

• Simplified taxation system for small businesses; and

• Flat tax for individual entrepreneurs.

Under the common taxation system, companies pay an average of 12 taxes and levies. There are about 40 national and local taxes and levies in Belarus.

The complexity of taxation legislation is rooted in (a) numerous legal acts which regulate the same issues; (b) their contradictory nature, (c) a multitude of reference provisions, and (d) conflicting local and national legislation. As a result, even taxation bodies are hard pressed to arrive at a single interpretation of certain provisions.

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The IFC survey shows that every so often, companies operating in different areas get different replies from their local tax authorities to the same questions.

Diagram 1. Complexity, inconsistency, and instability are the major drawbacks of taxation legislation,

% of SMEs identifying these problems

The complexity and inconsistency of tax administration force accountants to spend an average of 1.6 hours daily (or 20%  of working time) on tracking changes to applicable legislation. About 62% of SMEs say that the complex procedures for paying and calculating taxes force accountants to clock up to 13 hours of overtime monthly. This translates into aggregate costs of about 15 million dollars annually.

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“You feel totally unprotected. You are constantly trying to learn something new and spend your own money on seminars, but contradictory and fluid legislation makes all your efforts worthless.”

A company accountant

Entrepreneurs describe the tax legislation as highly contradictory. Accountants hold the view that there is not even one document which can be interpreted unequivocally. Most laws offer divergent interpretations of the same issues.

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“In most cases, legislation invites differing interpretations. For example, the instruction for the payment of salaries used to have a clear-cut list of steps. The Presidential Decree that regulates the same issue does not have such a list. It is unclear which document we should be guided by. The questions which arise call for official clarifications, which take time to get developed and approved.”

A company accountant

Accountants believe that complexity and inconsistency of the taxation system are the root causes of numerous violations committed by SMEs. In 2006, more than 50% of SMEs inspected by the Taxation Ministry were fined.  Entrepreneurs say that the control agencies inspecting the calculation and payment of taxes almost never use or promote preventive actions.

The instability of the tax legislation is manifested in numerous changes introduced in legal acts governing the procedures for the calculation and payment of taxes. The whole system is very cumbersome.  The Law “On the VAT” saw 24 changes from 1991 to 2006. In 2005, 35 legal acts were passed regulating the VAT, and 13 governing the profit tax.

The IFC survey findings demonstrate that the existing simplified taxation system is exceedingly unpopular with SMEs (Diagram 2). Only 4% of small businesses have opted for it. Such low usage is rooted in the conditions attached to its use (Diagram 3). Other disincentives include liability for the loss of patents, and the procedure for renewal,  as well as the impossibility of a repeat switch to the simplified system within a calendar year.