New customs reform aims to tackle Ukraine’s ‘single biggest cash cow’ of corrupt money in politics
At a time when state coffers are starving for money to fund Ukraine’s survival, illegal smuggling is costing the country billions of dollars a year in lost tax payments.
Through bribery or lying, smugglers avoid an estimated $2.4 to $3 billion in customs payments each year as they smuggle everything from cigarettes and iPhones to perfume and food across the border undeclared or mislabeled.
Last year, the State Customs Service audited 9,000 cases of declared “humanitarian aid” entering the country and found that around a third were probably other goods falsely labeled to avoid customs fees.
Business Pressure
Major business associations had also championed this bill, pressuring the government to raise revenue from illegal markets after the government moved to raise taxes on legal businesses.
With Ukraine facing a $35 billion budget deficit next year, customs reform was an attempt to mitigate the unpopularity of the country’s first wartime tax hike.
“I would say that this situation with the budget was one of the political enablers for this reform to actually be voted on. Because there is huge pressure from people and from businesses to actually not only raise tax rates but to work on more even tax compliance and on leveling the field,” Yurii Gaidai, senior economist at the Kyiv-based Center for Economic Strategy (CES), told the Kyiv Independent last month.
“There is huge pressure from people and from businesses to actually not only raise tax rates but to work on more even tax compliance and on leveling the field.”
“The big business pushback helped put these new (custom) reforms into play,” he said.
Customs reform has long been a goal of Ukraine’s business community. Before the full-scale invasion, a 2019 survey by the American Chamber of Commerce in Ukraine (AmCham) found that 76% of its members believed customs reform should be the top priority for Ukraine’s parliament and government.
Only a first step
After the president signs the law, it will take time to see results. The law provides two months for a selection committee to be formed, and up to three years for the re-certifications to be carried out.
“Even if it goes as fast and well as possible, I would not expect to have any fiscal results in the coming budget year,” said Gaidai from CES.
“I would even say that if it’s really done properly, we could expect some decrease in tax revenues at first,” Gaidai said. “Because every time the previous government strived to reform the customs service, they faced sabotage from corrupt people there.”
Source: The Kyiv Independent.