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Thousands protest over new Ukrainian tax code

KIEV (Reuters) - Tamara Boikovich buys fruit and vegetables in the Ukrainian port of Odessa and resells them in the capital Kiev to supplement a meagre pension -- but she now fears her old age will be spent dodging the tax man.

Demonstrators attend a rally to protest against a proposed new tax code in central Kiev November 22, 2010. REUTERS/Gleb Garanich

She was among several thousand who protested on Monday over a new tax code which the 60-year-old small businesswoman says will condemn her to spend her remaining life “in the shadows.”

The protesters, whose numbers were about 4,000 in the morning but later swelled to many more, urged President Viktor Yanukovich to veto the bill, already passed by the parliament.

They briefly blocked Kiev’s main downtown street, but were prevented by hastily-erected metal barriers from getting close to the presidential administration building.

“I have worked three shifts at a plant for 40 years and now I get a pension of 700 hryvnias ($87.50) a month, and the government still wants money from me,” Boikovich said.

“I will quit this business (if the new tax code takes effect). To hell with it! I will ‘move into the shadows’. I will paint walls for the rich and will pay no taxes at all.”

Plans to reform the ex-Soviet republic’s notoriously weak tax system have triggered the biggest public protests against the Yanukovich government since his election in February, and also revitalised a fractured political opposition.

The new tax code was passed by parliament on November 18, but has to be signed by Yanukovich for it to become law.

The government is under pressure from major creditors like the International Monetary Fund to reform a tax system which ranks third worst in the world after Belarus and Venezuela, according to a World Bank survey.

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The new tax code will significantly broaden the category of those small businesses which will have to submit details of their operations to the state tax inspectorate, and pay 25 percent of their profits, instead of fixed payments.

This will immediately apply to large numbers of people like market traders, taxi drivers, cafe owners and hairdressers -- Ukraine’s emerging middle class -- who until now have simply made monthly ad hoc payments to district tax inspectors.


But critics say the proposed new code offers a number of loopholes to the government’s wealthy industrialist supporters while hitting millions of low-income earners hard.

“This tax code doesn’t touch the rich, the oligarchs, at all,” said Vitaly, 30, from the industrial city of Kryvy Rih who asked to be identified only by his first name.

He said his family business, which he started in 2001 by selling foodstuffs in a tent to make just over a dollar a day, would no longer be able to expand and would have to be scaled back instead -- if not shut completely.

“We have invested hundreds of thousands of hryvnias, cutting down our spending to a minimum,” said Vitaly, who supports a family of four as well as his ageing parents. “I consider myself lucky if I make $1,500-$2,000 a month.”

Chanting “Shame! Shame!,” thousands massed on Kiev’s Independence Square, which was hemmed in by police in riot gear. They urged Yanukovich, who was in Brussels for a summit with the European Union, to use his powers of veto.

Yanukovich, putting at 300,000 the number of additional people who will now be liable for paying tax under the new system, said on Friday in an interview that the government would be unable to make ends meet unless the tax system was reformed.

Prime Minister Mykola Azarov defended the tax code as “the most liberal in Europe” but said his government was ready to have “constructive dialogue” with protesters.

The demonstrations coincided with the sixth anniversary of the start of the 2004 street protests against electoral fraud which became known as the Orange Revolution and denied Yanukovich his first chance at power.

Orange Revolution leader Viktor Yushchenko went on to become president in early 2005. But Yanukovich staged a comeback, winning a presidential election last February after a run-off against Yushchenko’s erstwhile ally Yulia Tymoshenko.

Writing by Richard Balmforth; editing by Mark Heinrich