To declare the money of migrant workers – the Minister of Social Policy recently introduced such an initiative. The idea of Andriy Reva has already been criticized and even mythologized, adding the thesis on taxation. Opinion has found out why the minister was concerned about the question of whether his initiative should be implemented, what are the chances of success, how is it connected with the subsidies and how the state strategy for the migrant workers should look like.
How has it started?
The issue of the declaration of migrant workers’ money has been raised earlier. However, it became clear after a recent broadcast with the Minister of Social Policy, in which Andriy Reva stressed, that for the last six months, more than 6.5 billion USD remained undeclared. It turns out, that families which receive funds from abroad, at the same time, can use subsidies from the state.
“People who work in Ukraine, pay income tax, pay a single social contribution. Their income is taken into account. And, as a rule, they cannot get subsidies, because they work “openly”, support both state employees and pensioners, and take care of themselves. And those, who work abroad, send money home. These funds come directly to specific households, and that is 6.5 billion dollars.
The revenue, because it is used for one’s own consumption. We asked: please, declare! Because this is the real money you get for your own consumption. So, today, when we talked about June 1, 2018, these funds did not appear in the declarations of our subsidies’ holders. Therefore, we also made an inspection, a verification in order to find out who hides incomes,” Reva assured.
Why did the minister worry about the issue?
As was later reported in the Ministry of Social Policy, the proposal to declare is not related to the desire to tax the earnings of Ukrainians, who work abroad. The main objective is the correct and fair calculation of subsidies. Because those who do not declare their funds receive bigger subsidies than it could be under the conditions of an honest declaration. And it happens at the expense of the actual taxpayers.
“The proposal for the declaration of income appeared due to the question of calculating the sum of subsidies, and not for the purpose of their taxation. Otherwise, migrant workers receive double advantage comparing to other citizens. The fact is that all those willing to get a subsidy must declare all their incomes, both those received in Ukraine and those coming from abroad. In practice, the following is happening: those who live and work in Ukraine, pay taxes and SSC (Social Security Contribution – translator’s note), often do not get a subsidy, because they honestly declare all the revenues (using the taxes paid by these people, the state provides subsidies to citizens). And those who receive income from abroad, as a rule, do not declare it applying for a subsidy. As a result, the subsidy is given to a greater extent than it could be on condition of an honest declaration of the income. This happens because of us – Ukrainian taxpayers. When a citizen applies for a subsidy, one must indicate his income, since he or she spends these funds on his own consumption. But if he doesn’t want to do it, then there is no problem. However, then he shouldn’t apply for a subsidy,” said the Minister of Social Policy Andriy Reva.
However, experts don’t preclude, that on the initiative of the Minister there is another hidden goal. As Vadym Bardas, an expert at the European think-tank, explained to Opinion, the government has now focused its efforts on optimizing budget expenditures and minimizing the size of the budget deficit, which is a condition of the IMF. It is possible to realize it, in particular, due to new requirements for those who get subsidies.
“Due to the intensive growth of the debt burden next year, the acting government is looking for all possible ways of reducing the expenditures of public funds and increasing their revenues. An increase in the tax burden for business and the growth of some excise taxes on consumer goods has already been announced.
In 2019, the Government will provide 272 and 145 billion hryvnias or 41% of the planned amount of the revenue part of the State Budget for repayment and servicing of the state debt. For comparison, in 2013 this indicator was 33%, and in 2014 – 45%.
Therefore, in order to minimize the size of the budget deficit, which is essential for obtaining loans from the IMF, the authorities will optimize budget expenditures, including the introduction of new property requirements for subsidies’ holders,” the expert believes.
Is there a need for implementation of the minister’s initiative?
Reflecting on this issue, Anatoliy Amelin, the head of Economic Programs of the Ukrainian Institute for the Future, emphasized that such an idea is completely hopeless, as the state will not be able to track the earnings of migrant workers. Moreover, the implementation of the plan may hit the country’s budget as new civil servants will be needed to control the situation.
“I want to ask Mr. Reva a question: Why do we have to declare only some revenues? If he proposes to declare incomes by Ukrainian citizens, then why these are some partial measures? Ukraine has no sources for obtaining this information. Neither revenues nor assets – we will have nothing to compare to, that is, it is absolutely hopeless. A huge amount of money will be allocated from the budget, civil servants, who will check and inspect something, will be hired once again, but we definitely will not achieve the result in the form of increase in budget revenues “, the expert commented.
At the same time, Amelin believes, that the migrant workers’ salaries support hryvnia’s stability, but the probable declaration can force citizens who work abroad to spend their money outside of our country.
“What will we achieve? The money will not come to Ukraine, they will be spent where they are earned. Accordingly, Ukraine will receive another economic blow, since namely migrant workers financially support the stability of the Ukrainian currency. According to the results of this year, 12 billion $ are expected. Unfortunately, we could not attract investors, and we decided to declare and additionally tax the migrant workers. I am very surprised by the level of competence of people, who offer such solutions without assessing their consequences for the economy and for the country,” is said in the comment to Opinion.
Serhiy Tsyhipa, an independent expert and political analyst, believes that Reva’s proposal makes sense, however, under one condition: if it’s solely declaring with no re-taxing of the earned funds.
“The initiative of the Minister of Social Policy to declare the flow of funds from abroad makes sense. But only when it comes to declaring, not taxing. After all, for Ukrainians, who are officially working abroad, employers have already paid taxes. Therefore, in order to avoid double taxation, there should be only a declaration,” Tsyhipa is convinced.
What are the chances of Reva’s idea realization?
Maryna Bahrova, a member of the board of the “Institute of National Policy” international union, believes that there is a very little chance of implementing the Minister’s proposal. However, if the idea still becomes a reality, the expert leaves open the possibility, that the workers will still be able to find legal loopholes to refuse to declare.
“An implementation of the initiative of the Minister of Social Policy in the form in which it is proposed is hardly possible. In general, citizens of Ukraine go to work abroad because of the inability to find work in their regions, which would provide minimum survival means. A significant part of the money earned abroad, Ukrainian citizens have to spend on housing rent, food, payment for various services. Therefore, the initiative proposed by the Minister is unfair for the most migrant workers.
However, regarding certain categories of migrant workers, such as cross-border offshore businessmen, whose monthly income starts at the rate of three thousand dollars, the implementation of the initiative of the Minister of Social Policy, on the contrary, is justified and necessary.
That’s why, it is important to distinguish categories of migrant workers who have traveled abroad for the sake of physical survival, from those who earn a significant amount of money for their own enrichment.
Even if the initiative of the minister is legally implemented, then workers will find legal loopholes in order to avoid the declaration of their earnings. Mostly not because the workers are so greedy and therefore do not want to pay taxes. But because there will be a violation of the principle of social justice,” Bahrova explained.
Economist Andriy Novak is convinced, that Andriy Reva’s initiative is unrealistic in terms of implementation since the main factor is the desire of the person to declare earned money on his own free will.
“It’s impossible to implement this initiative even technically if a person does not want to declare his earnings from abroad because it is impossible to force this person to do so. In addition, attempts to identify those who hide money earned abroad can return the practice of the 90’s, early 2000’s. Most of the money earned by migrant workers are sent to their Ukrainian families in cash through bus drivers or by railway,” the expert explained in a commentary to TSN.ua.
And what is the connection with subsidies?
In a statement published on the website of the Ministry of Social Policy, Andriy Reva explained, that those who do not declare received funds continue to receive bigger subsidies than it would be after declaring of their earnings. But how can it be settled?
Serhiy Tsyhipa, while commenting on the connection of subsidies and declaration of funds from abroad, stressed that in this case, the state should choose the honest way, and the citizens should also be honest.
“Regarding subsidies, in this case, the state should be open: if a certain income of a citizen is in a foreign currency and it is declared, then he or his family may be deprived of the subsidy. Both parties should be honest – both the state and a citizen,” Tsyhipa considers.
However, Anatoliy Amelin is convinced that taxpayers’ money should be spent not on subsidies, but on reducing energy consumption. Thus, according to expert estimates, the funds spent over the last years on subsidies could reduce energy consumption throughout the country by 40%.
“I don’t believe that migrant workers will declare their income. Secondly, I have a very big question about subsidies. Subsidies are paid to the citizens of the country who don’t have enough money to pay for municipal services. What is a subsidy? This is the money of taxpayers. As a taxpayer and an economist, I am convinced, that money has to be spent not on subsidies, but on reducing energy consumption. According to the estimates of Ukrainian Institute of the Future, the money that Ukraine has spent on subsidies over the last eight years would be enough to reduce energy consumption by 40% and, therefore, the cost of heat. Ukraine as well would stop importing gas, respectively, Ukrainian gas would be cheaper than European,” says the specialist.
What should be the state’s strategy: taxation or declaration?
To sum up, Serhiy Tsyhipa, stressed that the workers should not be subjected to any restrictions. The position and strategy of the state should be as loyal as possible. The only possible option for “control” is to declare. The taxation is out of the question.
“The strategy of Ukraine in relation to funds received from abroad from the migrant workers should be as loyal as possible. No restrictions and taxation. However, with possible declarations,” the speaker stated.
Anatoliy Amelin, in his turn, repeated that earnings of Ukrainians abroad are already taxed, and the option of “double taxation” may deprive us of the chance to see these funds in Ukraine at all. The strategy of the state, in the opinion of the expert, should be aimed at improving the quality of people’s life.
“Money, earned abroad, as a rule, is already taxed abroad. That is, if we want to offer double taxation, what are the chances of seeing this money in Ukraine at all? No chances. When we talk about the state strategy, it should be aimed, first of all, at improving the quality of people’s lives, not at increasing fiscal pressure. On the contrary, it should be aimed at encouraging spending this money in Ukraine.
A lot of jurisdictions that are interested in attracting investment create special economic zones where citizens’ income is not taxed at all. And this leads to the fact that people, earning money, spend them all in the same city, in the same village, in the same area where they are, thereby stimulating the development of the economy and the ability of citizens to stay at home, without going anywhere,” Amelin summed up.
By Dmytro Zhuravel