A significant part of the electorate cast their votes during the presidential race for Volodymyr Zelensky were influenced not least because of the slogan “End of the era of poverty”. It is still unclear what ways of overcoming poverty will be proposed, but certain financial initiatives of Ze team are queer even for their biggest fans. Is there a real need for the proposed declaration of income of the Ukrainians nowadays?
The Americans have set an example for the Ukrainians. They do not only show their taxes easily, but they are even proud that they pay them to their state. The declaration filled in timely and honestly is a matter of pride for every citizen. But it is still a problem for us, and it concerns people with different levels of income.
The possibility of the introduction of a universal declaration of income of citizens was announced by the expert on the economy, finance, and taxation of Zelensky’s team Danylo Hetmantsev. The expert referred to the European experience. According to him, it is necessary “to not only demand from the state, but also from ourselves”.
The idea was received positively by the fiscal officials. The newly appointed chairman of the State Tax Service of Ukraine Serhii Verlanov said that he supports the mandatory declaration of income by all citizens. However, the service headed by him hasn’t started to operate yet, the taxes are still handled by SFS.
“The society has not heard any particular claims either from the consultants or from the newly elected president, so it is unknown what this team can offer regarding the declaration of individuals,” Nina Yuzhanina, the head of the Verkhovna Rada Committee on Taxation and Customs Policy, assured Opinion. “But, since May 2016, the working groups of the Committee have been developing the concepts and texts of the draft laws: a) zero (one-time) voluntary declaration; b) implementation of BEPS steps (Base Erosion and Profit Shifting), the so-called deoffshorization.”
The people’s deputy stressed several goals. First, to fix the null point regarding the possession of assets by the Ukrainian residents both in the country and abroad. At the same time, to provide an opportunity to pay tax on the previously unpaid taxes, as determined by a declarant, with 5-9% rate. Secondly, to implement one of the recommended steps of BEPS, the taxation of the controlled foreign companies, to provide an opportunity to comply with the new rules on the declaration of income received by foreign companies, where the participation (share ownership) of an individual is 25% or more.
“And thirdly, such a one-time declaration by individuals (which is called tax amnesty by the IMF) would allow returning huge investments of, as a matter of fact, the Ukrainians to the country,” continued Miss Yuzhanina. “Because throughout all the years of Ukraine’s independence the vast majority of businesses were optimizing the payment of taxes through the use of various schemes in the framework of the current legislation. And these funds are not in the Ukrainian banks, and, therefore, can be legalized with an additional tax payment. It is also additional revenues to the budget.”
We’ll come back to the tax amnesty later. In the meantime, I’ll explain the need for the universal declaration in Ukraine.
“A lot of small payers will be against because for them it is a groundless burden,” Yurii Fedchyshyn, a tax policy expert told Opinion. “In addition, the tax service will not be able to fully cope with the declarations, but it can make demonstrative punishments selectively. Even now the termination of taxpayers cannot be carried out in Ukraine, because the tax service will be physically unable to check all. The property tax does not work for the same reason. In fact, the main beneficiaries of tax evasion schemes have been filing various declarations for a long time.”
…but there are exceptions
“If we want to overcome corruption, the initiative must be implemented, but it must be moderate, so that the burden of accountability does not fall on the majority of citizens who have nothing to do with commercial transactions and obtaining shadow income,” Serhii Dorotych, the head of the public organization Entrepreneurship Protection Union, noted. “I support the initiative of declaring income and expenses by American pattern, somewhat different from the model of declaring the income only. It also includes expenses directly related to employment and displays the net income, which is taxed. But this declaration should be introduced only after a certain threshold. What is the meaning of that? I believe that there is no need to pay taxes on income of a certain level, which can be within 10 thousand USD of income and expenses for the financial year. People who receive such income should not declare income and expenses.”
Mr. Hetmantsev reassured some Ukrainians – the universal declaration will not affect those who receive income from the state, for example, pensioners. However, Serhii Dorotych does not agree with the exception of the civil servants. On the contrary, all public sector employees are required to declare income, but there must be a corresponding financial limit.
“Because, unfortunately, there are exceptions to the general rules, when the income of specialists in the civil service does not even reach 10 thousand USD per year,” Mr. Dorotych assured. “The task of regaining the trust of all, including businesses, to the state institution, and the state in general, is super-complex. Constant changes in the rules of the game and the repression by the state machine will not encourage entrepreneurs to open their incomes and savings acquired by them even in a legal way. And in fact, everything that is in the shadow is acquired illegally. Taxes are not paid in full or on time, or some semi-legal mechanisms are introduced so it will be extremely difficult to implement these tasks in the short term. The society will value the sequence of actions of the state only with the restoration of trust. After the inauguration, Zelensky’s team will establish a good norm. Like, legalize, show your income, savings, pay a fixed tax and live in peace. But the business will live in peace only until the next change of power, and it is not granted that it will be the change for the better.”
The state is entrusted with control. In case of exceeding the income or expenses of the specified amount, the state must require a declaration from the subject – an individual. This, according to Serhii Dorotych, will help to overcome corruption. Otherwise, the declaration will not have any effect. In Ukraine, many officials and politicians are as poor as church mice. Almost all of their property, real estate, jewelry is registered on the name of their children, parents, relatives, godparents. And it’s impossible to control it.
“The non-declaration of certain categories will indeed create white spots, but in terms of revenues nothing will change, it will always be easy not to pay taxes in Ukraine,” Yurii Fedchyshyn is convinced. “But many citizens will find our how the business lives.”
Some well-known Ukrainian athletes sometimes declare small income for the sake of tax evasion, despite receiving considerable prizes for their victories at the international level,” the Office of Major Taxpayers of the SFS of Ukraine informs. Many stars of the national stage are also shadowing the payment of taxes. In general, the current declaration campaign is showing striking results. The entire amount of income declared by the Ukrainians has exceeded the last year’s figure almost by half: 57.5 billion UAH in 2015, and 83.6 billion UAH now.
Who needs amnesty?
When it comes to the upper mentioned tax amnesty, Danylo Hetmantsev supported its implementation in Ukraine. However, the expert on tax issues of Ze team said: the capital amnesty will not work on the criminally obtained incomes. That is, thieves will be responsible under the law. For example, Mr. Hetmantsev noted that amnesty will not apply to the income derived from corruption or human trafficking.
“For now, the details are unknown, it is too early to say anything,” said Yurii Fedchyshyn. “But it is too early to implement amnesty without changing the rules of the game. Such changes take at least a few years, but with the assistance of all participants of the process, these rules can be changed. Danylo Hetmantsev is an extremely authoritative expert in the field of taxation, but for complex changes, the parliament is also needed.”
In general, amnesty provides for the forgiveness of criminals. So, why apply it to those who earn their money fairly and do not violate the laws? Nina Yuzhanina shared her view on this issue:
“The capital amnesty cannot apply to the proceeds of crime. Such a declaration should be carried out before the first e-declaration is submitted by officials, and would not prevent the anti-corruption authorities from combating illegal enrichment or non-payment of taxes by individuals. On the contrary, it would provide them with the guaranteed evidence because there would be a countdown starting point for the evidence. Important explanatory work has been carried out in recent years. The majority supports such a declaration. But time has passed. And now we need to discuss the feasibility of submitting such a declaration by civil servants, as well as the amount of money (by tacit consent, in the case of non-participation in this action by an individual), the tax rate. And most importantly – to convince the lenders of the urgency of capital amnesty for our country.”
Those who say this proposal is an innovation, in fact, are not pioneers of this initiative. According to Ms. Yuzhanina, the experts of the relevant profile parliamentary committee worked on this idea for almost three years. And without solving a number of important issues, the implementation of the plan is impossible.
Another financial initiative of Zelensky’s team is the intention to write off almost 7.5 billion UAH of debt for unified social contribution. The amount has accumulated since 2016. The adoption of the relevant bill will be preceded by public discussion.
Decent wages first
Several well-known Ukrainians told Opinion about their attitudes to the idea of Ze team that everyone should submit a declaration of income.
Vadym Karandii, Deputy Minister of Education and Science:
“I support the idea of the universal declaration. But I consider it not in itself, but as a way to achieve higher goals. I consider declaring to be one of the effective ways of forming full-fledged “citizen-state” relations.
Natalka Prudka, a journalist:
“An ordinary Ukrainian should not declare income. To survive with miserable salaries and pensions, 70% of Ukrainians have to look for some part-time jobs, and they are often paid under the table. Declaring for them would mean losing the last money they have. When all Ukrainians have decent salaries and pensions, then the declaration can be introduced.”
Leonid Kosianchuk, the expert of the oil products market of Ukraine:
“All over the world, citizens submit declarations, but in Ukraine, it is a waste of time and resources. No one cares that deputies and other people, who have never worked in business, declare millions of cash and tens of land plots. Did anyone explain or take responsibility for the money which would need to be accumulated for hundreds of years even with the people’s deputy? Therefore, declaration without responsibility is only a method of the legalization of assets obtained by corruption and crime.”
Iren Rozdobudko, a writer:
“As for me, firstly we should set a minimum income threshold that needs to be declared and only then sneak into the pocket of some old lady who sells knitted socks at the subway. And before that – to restore order in the tax system.”
By Viktor Tsvilikhovsky