Forced Voluntarism Could Boost Shadow Economy
Last week saw the promulgation of the presidential decree On Additional Measures to Strengthen the Struggle against Concealing Untaxed Income and Laundering Illegally Obtained Incomes. In a newspaper interview, Mykola Azarov, head of the State Tax Administration (STA) of Ukraine, to ward off possible accusations of immodesty, refused to acknowledge authorship of this decree, but one can see even with the naked eye who will be first to gain from this document.
The decree authorizes the STA to exercise control over money operations, including those against bank accounts. But what about the banking confidentiality? “The banking system is prepared to furnish full information on every enterprise, but only under the law, i.e., if this enterprise is being prosecuted and there are documents testifying to this. But tax authorities want us to inform them about all the bank’s customers,” Oleksandr Suhoniako, chairman of the Association of Ukrainian Banks, said the Friday before last, addressing the congress of this organization.
STA bodies are now allowed “to search for funds and other property derived in a criminal way,” as well as to tax legal incomes in illegal circulation. At the same time, the decree does not say a single word that only the court has the right to conclude whether the money is of a “criminal” or “non-criminal” origin. Practice shows that if these functions are assumed by bodies of public administration, this may confuse the above notions which mean not just money but also the destinies of people. The more so that the decree authorizes the STA to form special units to combat the hiding of nontaxable incomes.
The aspiration to raise revenues should undoubtedly be considered a positive and useful thing. But if we, guided by this, grant every policeman the right to search the wallets of individuals for some stolen money, this will border upon stating that the very existence of a wallet is evidence of a crime.
Chairman of the State Tax Administration, Mykola Azarov, in an interview with Zerkalo nedeli, characterizes this decree, as well as one now in the making on controlling large incomes as a whip by which the state is going to force shadow dealers to legalize their incomes. President of the League of Lease-Holders and Private Owners Viktor Khmiliovsky thinks both the latest presidential decree and the draft law on income legalization are “positive acts.” “It is important for us that Ukrainian citizens abide by the law,” he says.
Anatoly Drobyazko, leader of the group of advisors to the National Bank governor, has a slightly different opinion on this matter: “It is very bad when the two hands are doing different things. This will do no good.”
People’s Deputy Anatoly Matviyenko fears that “in this case, judicial bodies seem to become unnecessary, for something can be confiscated even without a court ruling,” he notes. “It has already happened more than once that the tax administration confiscated and sold things, even without resorting to this decree; then even the Arbitration Court decision failed to solve the problem: how to return what had been sold? A decree is not a law, it cannot work as a law but may well be used to cover up illegal actions.”
“Speaking about the problem of money laundering, including in the shadow sector of our economy, I am sure these problems should be considered as being of a systemic and integrated nature and depending not only on the presence of corrupt structures in our economy but also to a large extent on the effectiveness of the economic, tax-related, and financial levers that create the conditions for industrial and entrepreneurial activity,” People’s Deputy and President of the Ukrainian League of Industrialists and Entrepreneurs Anatoly Kinakh notes. “What is important for all those who draw up such documents to understand is that there are not only criminal and corrupt elements in the shadow sector of the economy. There are many serious, honest, and decent entrepreneurs and businessmen there, who are forced to flee to the shadows due to very inadequate rules of the game in our economy, when an attempt to work within the bounds of law ends up in a financial disaster and keeps them from fair business activity. In other words, if we are going to solve the problem of money laundering and reduce the shadow sector using only such strong-arm fiscal measures mentioned in this decree, the consequences will be opposite to those desired. This decree will have positive results only if it is to be accompanied by consistent steps aimed at creating favorable conditions for entrepreneurial activity and increasing the legal protection of entrepreneurs and all taxpayers. Unless all this is done, the decree could bring forth even more sophisticated methods of tax evasion as well as further growth of the shadow economy.”
