Danylo Hetmantsev: "Complete reboot of the tax agency, customs, and the Bureau of Economic Security is needed by the end of 2023"

As part of the agreement with the IMF on providing a new loan, the Ukrainian government has committed to avoiding any actions or measures that could undermine tax revenues to the state budget in the near future. After all, all efforts are currently focused on ensuring the maximum mobilisation of resources needed to finance security and defence.

This means that while the country is under martial law, one should not count on tax liberalisation or a reduction in tax rates. Moreover, there is a full-fledged fight against tax evasion. An illustrative example is a massive campaign to block the tax optimization scheme involving gambling organisers, payment systems, and banks. As a result, several financial institutions have lost their licences, and in March, gambling market participants paid slightly less taxes than in the entire year of 2022.

In addition, the process of "digitising" tax administration has been launched, which on the one hand, will simplify communication between taxpayers and tax authorities, and on the other hand, will strengthen control. For example, the introduction of an electronic excise stamp should practically completely solve the problem of illegal circulation of excisable products, tobacco products, and fuel in the first place.

Mind talked to Danylo Hetmantsev, the Chairman of the parliamentary Committee on Finance, Tax, and Customs Policy, who spoke about the situation with filling the state budget in 2023, large-scale personnel changes at customs and in the tax system, as well as the resumption of business inspections.

– What is the situation with tax and customs payments since the beginning of 2023? Can we note an improvement in the situation around budget replenishment?

– In March, the tax administration recorded an overfulfilment of payments to the state budget by 4.2%. I think we will also overfulfil payments administered by the tax authority in April. When it comes to overall revenues for the Q1 of 2023, the tax administration did not reach the planned indicators by 1.2%. This is due to the fact that in January and March, the largest VAT refunds in the last three years were made. As of April 19, taxpayers were reimbursed for UAH 45.5 billion. As for customs, the situation is ambiguous: the plan for the first quarter was exceeded by 1.2% due to January, but there was a noticeable decline in March, and the customs agency did not fulfil the plan by 6.5% for this month.

– How is the personnel problem that arose in the State Tax Service (STS) and the State Customs Service (SCS) being resolved? Will competitions be held to appoint new leaders, when, and in what format?

The most arduous situation is in the SCS. I remind you that on February 1, the Cabinet of Ministers dismissed almost the entire leadership of the customs service – acting chairman Vyacheslav Demchenko and his deputies – Oleksandr Shutskyi and Yaroslav Cherkasky. Currently, the acting head of the agency is Serпiy Zviagintsev. In mid-April, the Verkhovna Rada supported in the first reading the government bill No. 6490-d on rebooting the customs service. However, we have added to it. In particular, the bill's provisions define the procedure for competitive selection of the Head of the SCS, provide for an annual audit of the customs service's efficiency, and introduce mandatory recertification of all customs service employees within a year after the appointment of a new head.

In the tax administration, we already see positive changes. Its internal cleansing is underway. In particular, dismissing those employees who violate the law during their activities and the leadership that allowed such violations. In April, the leadership of regional units of the STS was changed – in the Rivne and Sumy oblasts, and another region is next, which I will not mention now.

In general, we have one option for a systemic personnel reform in both the customs and tax services, which involves an open competition for the position of the head, followed by the formation of a rigid vertical.

– In your estimation, how much time will it take to appoint new leadership in the customs and tax services?

– A complete reboot of the State Customs Service, State Tax Service, and the Bureau of Economic Security (BES) needs to be carried out by the end of 2023.

– By the way, what is wrong with the BES? After all, this structure was created not so long ago and was supposed to work without excesses?

When the former head of the Bureau was appointed (Vadym Melnyk, dismissed by the Cabinet of Ministers on April 11 – Mind), a serious personnel mistake was made, as about 80% of BES employees are former tax police officers. Therefore, the same approaches dominate the bureau's work as those used by the Tax Police. The reform did not achieve its goal.

Our approach is to conduct an open, transparent competition for the selection of a new BES head, who in turn will gather a new team of professionals. I am confident that there will be no special problems with this, as there are many who are willing to work in this structure. The main thing is that their selection is conducted as objectively as possible. In addition, my proposal is to involve demobilised military personnel in the BES, as well as in the customs and tax services, of course, after prior preparation. This will significantly strengthen the personnel potential of these agencies.

Photo: UNIAN

Unfortunately, as practice shows, the clan system has deeply penetrated the personnel of both law enforcement and financial institutions. Too deeply to be cured by re-educating "strong professionals" who have served in the system for decades.

– What do you mean by "clan system"?

– These are organised, cohesive groups of officials, law enforcement officers, and representatives of the so-called business sector who earn (or, more correctly, steal) huge sums of money through various schemes – from illegal production of alcohol and tobacco to selling state coal at half its real value.

There was an interesting situation in the tax office. An organised group in the Sumy Oblast imported fabrics at a reduced price into Ukraine and then, passing the goods through a chain of controlled scheme companies, managed to sell them without paying a penny to the budget. The "business" would never have received such preferences if the customs and tax authorities had not turned a blind eye to the abuse. But that's not all. When tax officials were fired for such "negligence," the prosecutor's office got involved in the "business." We had to say goodbye to the regional prosecutor.

This is just one example of clan behaviour. Clans have penetrated the state apparatus at the local and national levels. They are a threat to our statehood on a par, and perhaps even greater than the russians. Therefore, in addition to legislative work, I consider it my social duty to fight these clans within the framework of parliamentary control, publicity, and other available legal methods.

– How is the "tax service in a smartphone" project progressing? Have any services been implemented, in a test mode to the least?

In March, the service for pre-filling declarations on income and assets of individuals was launched. In April, the updated contact centre of the State Tax Service will start working. The Electronic Cabinet of the taxpayer is constantly being improved.

– During the first reading, draft law No. 8237 faced serious opposition from some MPs. Have you been able to reach a consensus on the controversial provisions?

– Yes, that's true. Some colleagues deliberately defeat the bills that the president has supported. And yes, the introduction of electronic excise stamps contradicts the interests of the black market. But I don't see the point in making deals with the black market. We want to kill it. Together with dirty lobbying, any tax evasion will be eliminated.

However, I think that by the second reading, we were able to find a balance between the interests of legal producers of excisable goods and trading networks. I hope that the vote will pass without problems and that from March 1, 2024, the electronic excise stamp will start functioning. In particular, its introduction will allow for the successful de-shadowing of the tobacco and fuel markets.

– What can be the effect of such denormalization? Are there any estimates?

– We believe that taking excisable goods out of the "shadow" can bring about 20 billion UAH of additional payments to the state budget per year. But the question is not only in the excise mark but also in the normal operation of law enforcement agencies, which we do not see at the moment. We have scheduled a committee meeting on this issue in the near future, where we will hear from all law enforcement officers.

In July, pre-war taxation will be practically restored together with inspections. Aren't you afraid that the abolition of tax incentives, including the 2% turnover tax, will provoke taxpayers to move into the "shadow"?

The single tax at a preferential rate of 2%, introduced in the spring of 2022, has fulfilled its task. It is no longer a significant factor in supporting the economy. Therefore, the Ministry of Finance believes that the abolition of the 2% rate will not have a negative impact on the revenues to the state budget.

Photo: UNIAN

Moreover, an increase in payments is expected since about 3/4 of enterprises still pay income tax and VAT. And the transition of those legal entities that still use the preferential turnover tax (about 50,000 companies) back to the general system will only benefit the state budget. According to the Ministry of Finance's calculations, this will bring an additional UAH 8 billion by the end of the year.

– Regarding inspections: which taxpayers the tax authority is going to control the first?

In the context of digitalisation, there should be a transition to a risk-oriented approach when assigning inspections. The essence lies in the fact that the tax authority must fully implement ARCS – the Automated Risk Control System. The tax service will analyse taxpayers based on approximately 100 criteria, create taxpayer profiles, and distribute them into risk groups.

Firstly, taxpayers with a high level of risk, who have previously committed violations, should be subject to inspections. While taxpayers without any claims can rest assured from auditors. Therefore, the compilation of the inspection plan will become more intelligent and will allow reducing excessive pressure on business from the tax authority.

–  In early April, you said that the committee would return to discussing the bill №7232 on additional taxation of companies whose parent structures have not left the russian federation. What could change in it, and when could this bill be voted on?

The essence of this bill is as follows. Companies that have "daughters" in Ukraine but have not left the russian market will pay direct taxes (income tax, rent) at a rate 1.5 times higher than the standard rate. The criteria for determining such companies are set out in the law, but exceptions can be made by the Cabinet of Ministers.

Before the vote, it is necessary to update some provisions and synchronise them with tax periods, as the bill was developed a year ago. But the discussion about this document is ongoing. So I cannot predict when the parliament will consider it.

– What is the essence of this discussion?

– On the one hand, the provisions of the Draft Law №7232 will affect companies that actually pay money to the russian budget and thus support the russian army. On the other hand, these same companies create jobs in Ukraine. Therefore, it is important to find some balance so as not to harm the Ukrainian economy and not affect the inflow of funds to our state budget.

In the text of the memorandum between Ukraine and the IMF, it is stated that in the coming years our country will make efforts to combat tax evasion. What specific measures can be taken?

In the memorandum with the IMF as a structural benchmark, we have undertaken to develop and adopt a medium-term National Revenue Strategy for 2024-2030 by the end of the year. One of the elements of this strategy, I quote, is "reviewing the simplified tax regime to eliminate tax erosion on labour by replacing the legal basis of labour relations with the provisions of civil law." We will definitely not take steps in this direction during wartime. But after the war, this issue will definitely be on the agenda.

In addition, it is necessary to achieve institutional strengthening of the STS, customs, and the BES, as well as to bring VAT and excise taxes into accord with EU legislation.

– And what about the 10-10-10 reform concept?

– Everything happened as experts warned – it ended up on the populist shelf alongside the 5.10 reform.

In this context, I would like to mention tax amnesty. It was supposed to be the "starting point" for stricter control of individual incomes. But judging from its results, the declaration campaign did not achieve the desired outcome. What are the further plans regarding this? Will there be a repeat amnesty, for example? After all, such a practice is common in many countries.

I disagree that the amnesty did not achieve the desired result. Its main goal – to give individuals the opportunity to legalise their incomes and assets from the "shadow" – was achieved. Of course, expectations regarding the amounts of legalised funds and additional revenues to the state budget were much higher. But the fiscal goal, I repeat, is not the main one. Those who wanted to legalise their incomes have done so. And there will definitely be no repeat amnesty.

– How did the campaign to regulate the gambling market end?

– It can already be said that this is a victory for our Adhoc Inquest Committee, which brought significant revenue to the state budget. As of March, the legal turnover of the gambling market exceeded UAH 10 billion. The increase compared to February was more than 3.5 times. So we see that gambling business operators have decided to work within the legislative framework, without concealing their incomes. Which in turn ensured an increase in tax revenues.

Excluding the corporate income tax, the amount of taxes paid by the gambling market on winnings in March was almost UAH 500 million. This is more than in 2022. Therefore, we can now say for sure that we "feel" the turnover of this market and see that the current tax system is not burdensome for it, and it will continue to work within this system in the future. And we will still push those who have not yet come out of the "shadow".