Tax Service Will Contract to $202 million
The State Tax Administration (STA) promises that a fiscal service based on European models will be created in Ukraine in the next decade. A special Development and Modernization Department has been set up to implement the comprehensive reconstruction program. Moreover, a loan was taken from the World Bank, which agreed to partially finance the project, whose total cost will be $202,000,000. Last week an agreement was signed between Ukraine and the World Bank on granting the first installment of $40 million. The whole amount of the WB money granted on the conditions of flexible loans (each next installment is given after the previous one’s requirements are satisfied) will be $113 million. The rest must be financed from Ukraine’s budget.
The very fact of crediting the tax service is rather interesting. Did the World Bank study the debtor’s credit history? Who guaranteed the loan? Could collateral have been offered?
Seriously, as stated by head of the department Valentyna Moskalenko recently, the Tax Administration (as well as the taxpayers, judging by numerous complaints) is unsatisfied with its present image. Thus, the project’s major goal is improving the tax service’s reputation. Another goal is strengthening its fiscal functioning: in Ms. Moskalenko’s words, along with business development, schemes to avoid taxation are also progressing, making the work on filling the budget more complicated. By carrying out complete computerization and automation of the tax administrative processes, the STA intends to become a “professional structure with a highly developed information system.” There will be no space for corruption in it since, the department head believes, automation will make it possible to minimize the human factor’s influence on tax collection.
The tax service reconstruction will consist of two consequent stages. In the first (2003-2007) it plans to draw up a complete description of the administrative system and operations, start reorganizing tax bodies through their amalgamation and agglomeration, implement a series of pilot projects in the major directions of STA work, enhance payments accounting, process tax reports, and record-keeping. In the second stage (2008-2013) the tax bodies’ reconstruction will be completed, new operational and administrative processes introduced, while information and analytical systems will be implemented throughout Ukraine.
The tax service’s new structure envisages departing from the administrative division-based system. As a result of the agglomeration, ten administrative districts will be created to replace the current twenty-seven administrations, while the number of district tax inspection offices will decrease by one-third compared to the present 450. Obviously, local authorities are not overly enthusiastic about one of the most powerful administrative levers being taken from their direct control. However, according to STA First Deputy Chairman Oleksiy Shytria, the differences that aroused on the first stage are already fixed. In connection with reorganization up to 40-50% of the tax administration’s top staff will be reduced. Nevertheless, the tax workers are not threatened with mass unemployment: in Ms. Moskalenko’s words, “natural” staff attrition will take place as they reach retirement age along with redistributing staff to higher priority areas, primarily, that of control and inspection.
First Vice Premier, Minister for Finance, and former Director of the Tax Administration Mykola Azarov called this expensive project an investment one. Obviously, the government hopes that it will manage not only to pay back the World Bank loan but also increase tax revenues to the budget. This can certainly not be achieved by organizational and technical measures alone. Such measures do not eliminate the need to reform Ukraine’s tax system in general.
