Rebooting the tax service: Will the new formula by Hetmantsev work?
And how can corruption truly be defeated in this department?
The campaign to reform the main fiscal and regulatory bodies is ongoing. Now it's the turn of the tax authority to experience a reboot. A group of MPs led by Danylo Hetmantsev, the Chairman of the Committee on Finance, Taxation, and Customs Policy, have decided to tackle the 'reboot' of the State Tax Service against the backdrop of recent scandals involving the detention of tax officials of various ranks as part of criminal proceedings. The relevant draft law provides for a competition to appoint the head of the State Tax Service of Ukraine, introduces certain guarantees of his 'immunity' from external influence (in particular, political), and an actual increase in the salaries of tax officials, among other things. Maria Zolotariova, Attorney-in-Charge of Tax and Customs Law Practice at the Vdovychen and Partners law firm, PhD in Law, analysed for Mind the novelties this draft law contains and what to expect from this business initiative.
Read also: Danylo Hetmantsev: "Complete reboot of the tax agency, customs, and the Bureau of Economic Security is needed by the end of 2023"
Number and date of registration: No. 9243 dated 26.04.2023.
Authors of the legislative initiative: Danylo Hetmantsev, Yaroslav Zhelezniak, Oleksandr Sova, Olga Vasylevska-Smagliuk, Ruslan Gorbenko, Oleksiy Leonov, Yevgeniya Kravchuk, and others.
Stage: Draft law No. 9243 was received by the Verkhovna Rada of Ukraine. As of the date of publication, this draft law has been made available for review. If the document is passed by parliament, it will come into effect on the day following its publication.
Alternative draft laws: There are no alternatives to this draft law at the time of publication of this article.
Cost of the issue: As explained in the explanatory note, the implementation of the provisions of the draft law does not require any additional expenses from the state budget. However, the changes envisaged regarding the annual independent external assessment (audit) and the activities of the Commission on conducting external independent assessment (audit) suggest that such additional costs may be incurred.
Content: The authors of the draft law propose to introduce provisions into the text of the Tax Code of Ukraine regarding:
- the conditions for the employment of employees by regulatory authorities;
- the legal status of the head of the State Tax Service of Ukraine;
- his appointment on the basis of a new separate competition and grounds for dismissal;
- guarantees of his independence while in office;
- conducting an external independent assessment (audit) of the effectiveness of the State Tax Service of Ukraine and the work of the Commission conducting such assessment;
- payment of wages to employees of the State Tax Service of Ukraine;
- and conducting a one-time certification based on the results of the adoption of this draft law.
Read also: Economic Security Bureau: A reboot is proposed
Lawyers' position. Overall, agreeing with the need to cleanse both the tax and customs services of dishonest officials, and to ensure the independence of the head of the State Tax Service of Ukraine from external influence, this draft law resembles a partial 'patching up of holes' in the current situation.
How can one solve the problem of low-quality tax administration and corruption in taxation?
Firstly, introduce clear provisions of tax legislation. It is unlikely that we can recall the experience of any developed country where the law mentions the presumption of the legality of taxpayer decisions, based on the probability of understanding tax norms unevenly.
Secondly, the responsibility of tax officials for violations should work not only on paper.
The point is in personal responsibility, including for various decisions made by commissions within tax authorities. The inevitability of punishment for a tax official must be an axiom, and the planning of revenue from tax and penalty accruals should take place before tax audits, not after – which is a flawed practice.
Thirdly, ensuring an adequate level of remuneration and, as a result, a desire to preserve a position not at the expense of the possibility of obtaining illegal benefits.
Fourthly, speedy judicial protection of taxpayers' rights, which is ensured by complying with procedural terms in court. The realities show that the judicial consideration of tax disputes can last for years, which undermines the effectiveness of judicial protection.
Read also: New taxes: What for and how much to pay in 2023
Next to this, the legal technique issues in initiating this bill require critical analysis. Tax officials, customs officers, and employees of other government agencies are primarily civil servants, to whom the general provisions of the Law of Ukraine On Civil Service apply, defining the procedure for Ukrainian citizens to access the civil service.
Furthermore, the Law of Ukraine On Central Executive Authorities has been adopted, which defines the organisation, powers, and procedures for the activity of the central executive authorities of Ukraine. At the same time, according to paragraph 1.1 of the Tax Code of Ukraine, this code regulates relations arising in the field of tax and levy collection, and in this context, issues related to employment with supervisory authorities, remuneration, etc. are not within the scope of regulation of this law. What goal did the authors of the bill pursue, in particular, by duplicating in the Tax Code of Ukraine the provisions of the Law on Civil Service regarding restrictions on the employment of civil servants?
It seems entirely reasonable to propose shaping the legislation in such a way as to codify the norms that regulate civil service issues with uniform standards for the recruitment and dismissal of all officials, rather than overloading the content of the Tax Code of Ukraine, turning it into a 'three-volume manual on domestic tax history'.
The issue of remuneration of civil servants, in turn, should be determined at the level of regulatory legal acts of the Cabinet of Ministers of Ukraine.
This will ensure a clear structure of legal regulation. On the one hand, legislation on civil service: from the recruitment to the dismissal of officials, conducting competitions for positions, assessing professional qualities and integrity, remuneration, and the responsibility of civil servants, including for corrupt offences; on the other hand, tax legislation: the procedure for tax collection, tax administration, tax control, administrative appeal, and the responsibility of taxpayers for tax offences.
Who will benefit? On the one hand, employees of tax authorities will benefit from the adoption of draft law No. 9243, as salary increases are expected. According to the bill, the minimum salary of a state inspector will be 9.5 times the subsistence minimum as of January 1st (UAH 24,595 in 2023), and the maximum salary for the head of the State Tax Service will be 30 times the subsistence minimum (UAH 77,670).
On the other hand, a competition for the head of the tax agency is planned, which will take into account basic evaluation criteria such as integrity and competence, and will be conducted according to the procedure of competitive selection based on the positive practices of the National Anti-Corruption Bureau and the Specialised Anti-Corruption Prosecutor's Office. Therefore, if one starts from the premise that 'the fish rots from the head down', for the community, it may mean the opportunity to choose the head of the State Tax Service of Ukraine who will meet both the needs of society and the state. The new leader will have guarantees of independence in the form of contractual terms and clear grounds for dismissal.
Who will be at a disadvantage? We hope that dishonest tax officials who cannot pass a one-time certification will be at a disadvantage.
Conclusions. From the perspective of the competition procedure for the position of the head of the State Tax Service of Ukraine and the principles of top-level management of the tax service, this bill significantly changes the current order and, we assume, can be a successful start that will fundamentally change the situation in the relations between tax officials and taxpayers, which has the nature of 'tax blackmail'. However, it is unlikely that this draft law will be able to solve the problem of low-quality tax administration by supervisory authorities in the near future.
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