In #Ukraine, new government demonstrates fighting against shadow economy and corruption

| September 26, 2019

President of Ukraine Volodymyr Zelenskyi and parliament have begun to actively introduce changes to tax legislation aimed at unshadowing of the economy, combating corruption schemes and reducing pressure on business. At the same time, the law on the creation of a new agency – the “Bureau of Financial Investigations” caused some concerns from experts and the public, writes Graham Paul.

According to IMF estimates, the level of shadow economy in Ukraine is 44.8%, and according to Ukrainian tax experts, at least 50% of GDP. The studies by PWC, World Economic Crime and Fraud Research 2018: Survey of Ukrainian Organizations, showed that two of the first five types of economic crimes in Ukraine are corruption and embezzlement, and according to the statistics of the respondents’ answers in Ukraine, cases of corruption increased in 2018 up to 73% compared to 56% in 2016.

The head of the parliamentary committee on finance, tax and customs policy, Daniil Getmantsev, has already announced the simplification of the administration of VAT and introduction of tax on withdrawn capital.

However, the bill on creation of a new tax department to replace the tax police arose criticism from the people’s deputies, experts and the public. In particular, tax expert Andrei Gmyrin noted that the new bill has a number of risks that could lead to the fact that the promised tax department may not become truly independent.

“The adoption of the Bill “On the Bureau of Financial Investigations” registered on the website of the Verkhovna Rada will negatively affect businesses and citizens, because the new fiscal body will have an exclusively punitive function and will depend on the government or the Minister of Finance. In addition, the bill does not provide for a competition for the post of head of legislative restrictions to other law enforcement agencies to deal with crimes in the field of public finance, control and the like,” he said.

As an alternative, the expert suggested that the deputies create a new tax agency with a special status that will ensure the country’s national security in the economic sphere.

“The National Security and Defense Council, which is headed by the President of Ukraine, should coordinate and regulate the new independent State Revenue Service (the name is not important). The activities of the new fiscal department should be as independent as possible from state authorities, prosecutors, political parties, public associations. Control over the activities of the Service should be carried out by the parliament and supervisory public council specially created within the Service. Already existing anti-corruption bodies of the NABU and the State Bureau of Investigations are enough to investigate possible violations of the Service’s employees – they can effectively cope with such tasks as abuse of authority, corruption, negligence of employees,” explained Gmyrin.

Also, political expert Taras Semenyuk noted that the law does have some flaws that should be eliminated. Separately, he highlighted the proposal of the tax expert Gmyrin.

“The reorganization and integration of the existing tax authorities, their functions and information bases into a single information system, where the entire chain of movement of funds will be immediately visible, will make it possible to promptly prevent and qualitatively investigate economic crimes. That is, the coordination of the actions of tax department employees should be carried out from a “single center”. Similar mergers and optimization of tax authorities were used in other countries and proved to be effective. It is time to carry out a qualitative tax reform, but not, as always, create one body in exchange for another,” said Semenyuk.

According to TNS sociological research held by the Design Bureau of the National Reform Council, only 17% of Ukrainian citizens trust workers of the tax authority operating in Ukraine. The history of the tax reforms in the developed countries shows that without creation of an independent tax agency it is impossible to transparently and efficiently investigate economic crimes, especially of TOP officials. Perhaps the authorities in Ukraine should consider the opinions of the expert community so as not to repeat the mistakes of the previous parliament.


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