How to tame “ghost” economy?
Recently the parliament has adopted in the first reading the bill suggesting the establishment of two additional tax police departments: the Main Department of Special Investigations, and the Department of Big Taxpayers Operational Handling. The authors of the document explained the necessity of its adoption by the fact that the tax police need to considerably increase the work on revealing and ceasing illegal actions of interregional organized criminal groups. However, some opposition deputies already labeled this idea as creating a “tax special mission unit” which will become for the government an additional tool of fiscal pressure on business. So what these additional departments are really supposed to do in case the law is adopted? Which tax evasion schemes do the tax police plan to close in 2010? The Day discussed these and other issues with the first deputy head of the State Tax Administration of Ukraine, the head of the tax police Viktor Sheibut.
What is the motivation for establishing in the structure of the tax police the Main Department of Special Investigations? What functions and authorities is it supposed to obtain?
“Since 1996 the structure of the tax police has not changed. But the hierarchy of tax offences has changed and improved considerably. If before the tax police often faced primitive crimes (such as counterfeit excise stamps), today financial crimes have acquired a transnational character. In view of this many new schemes of tax evasion appeared.
“In particular, cybercrime spread significantly. It includes the abuse of electronic banking, electronic purse replenishment cards, scratch cards, etc. In addition, new schemes using off-shore zones appeared. Previously, the company was established only in one off-shore zone. Recently several off-shore zones have been included in one scheme aiming at minimizing taxes of one big taxpayer. Another new crime is a kind of intellectual conversion centers, which sell for big sums of money fake intellectual patents. Our employees revealed precisely this kind of a center in Zhytomyr. As a result of the work accomplished the scheme involved was made. It took half of my conference desk. At this, only well prepared specialists could understand the principles and details of the scheme. For a typical militia investigator working with trivial crimes it would be problematic to do.
“Nowadays there are many examples of such tax evasion schemes. Moreover, every day they substantially improve, because on the other side of the barricades there are often highly skilled specialists from Oxford or Cambridge universities. And only specialists of appropriate level can detect or prevent their ‘creations.’ Today intellectual tax evasion schemes are used to abuse all sectors of economy. Therefore at present the State Tax Administration of Ukraine suggests updating the structure of the tax police in view of the growth of innovative types of crime in the taxation area.
“We do not plan to increase the number of employees in case of establishing this department. According to our estimates, now there are 130 vacancies in the department, some of which can be reserved for the creation of such a department. Requirements to the candidates for the job will be tough: speaking several foreign languages, finance and law (international law) education. In a good sense they should be even computer hackers. Today such people work even in the current structure of the State Tax Administration of Ukraine. Their knowledge and skills should be focused on eliminating innovative types of crime, rather than finding fake vodka. This will bring greater benefits to the budget as well.”
However, businessmen and representatives of the opposition believe that this department will become an additional tool of tax pressure on business, which eventually will also increase the corruption appetite of officials.
“We do not establish a ‘tax special mission unit,’ even though we are actively being accused of it today. During work conversations devoted to discussing this bill, we will prove this thesis to business and deputies by means of arguments. The fight against tax offenses of transnational and large Ukrainian corporations, and in the spheres using new electronic technologies will become the major objective of the Main Department of Special Investigations. Moreover, the creation of this department within the tax police complies with the requirements of the International Monetary Fund and the World Bank in the context of their recommendations regarding the withdrawal of economy from the shadow sector.”
What is the Departmental of Big Taxpayers Operational Handling for? Essentially, it duplicates the function of the tax police: controlling taxation.
“Today in the structure of the State Tax Administration of Ukraine there is a department dealing with big taxpayers. Civilians work there, they monitor the transparency of big taxpayers. In case of violations officers of the tax police are provided for some time. However, taxation officers who come to establish the fact of tax evasion often cannot immediately understand all the specifics and details in the work of such large enterprises. So sometimes there are problems.
“It is now suggested on the basis of this office to create a tax police department, which will monitor these big taxpayers. But its main difference from the current office will lie in dividing all major taxpayers into three groups by industrial specialization: energy (coal, oil and gas), metallurgical, and chemical. In each of these groups professionals of relevant specialization will work directly, for example, power industry tax officers.”
And where will you get such highly specialized employees, since they can’t be prepared in a day?
“Prior to my work in the State Tax Administration of Ukraine, I worked as a mining engineer, and later at the Security Service of Ukraine. So I do not need an explanation what coal industry is or how a mine works. In the State Tax Administration of Ukraine today many workers have two or three educations. Additionally, these employees will be prepared by the field academy, too.”
What tax evasion schemes do you plan to close in 2010?
“Today 50 percent of the economy is ‘in shadow.’ Together with experts we began to analyze the reasons for this and in the process we paid attention to goods penetrating the country and the mechanism of their domestic sales. It turned out that many imported consumer goods at the border get customs clearance (in containers) for a lowered customs value. Officially, the state budget gets, for example, 8 hryvnias per kilogram for the product, while real payments should be ten times bigger, given the true value of the goods. However, before the goods get to the store, they pass through a chain of companies, which must contain a firm buying a kilo of the goods at the lowest price, and reselling it for a thousand times more expensive price. This is the so-called ‘tax hole.’ After passing it, the product gets a real monetary value, which is fixed on paper. And the way to the store is open. The fictitious company then disappears. Tax officers, analyzing the tax declarations of taxpayers who sell this product cannot prove who actually evaded taxes: the mediatory firm or the store.
“In order to reduce the number of such sham companies, the tax police today have developed a special computer program. It contains the main features of sham companies: annual turnover of more than 70 million hryvnias, less than 10 hired workers, wages load of less than 6,000 hryvnias, and depreciation services of about 2,000 hryvnias. When the program was launched, it showed 29,870 potential companies which provide false tax alibi for foreign goods. We divided them among regions and got a bit over a thousand companies for a region. For this thousand, in the region there is an average of 200 tax policemen, that is five firms for each. I ordered to physically verify the location and activities of all these companies.
“The very first results showed discrepancies in the location and registration of many of them. Now we take taxpayers’ tax declarations and look if such firms are there. If they are, then a question emerges which we are to resolve. And now we see that these bogus one-day companies began disappearing. What does this mean? That these entities which use them to reduce their tax obligations will have to either legalize the contraband goods at the border by paying real taxes to the budget, or make tax officers accept a tax declaration with a false chain of firms.
“Currently the tax police together with the Ministry of Internal Affairs started a verification of big systemic stores looking for smuggled goods for which no actual taxes were paid. And believe me, when auditors come in and ask the administration for documents, for example, for computers — there is panic. According to our estimates, the legalization of contraband goods by the end of 2010 can contribute additional five billion hryvnias to the budget.”
