This is the amount of illegally exported Ukrainian capital, experts say
As The Day predicted, the legalization of shadow capital has finally got off the ground when President Kuchma signed his March 31 decree On Measures to Legalize the Concealed Incomes of Natural Persons. In line with the decree, Ukrainian natural persons can now declare their earlier unreported incomes to the tax authority without specifying the sources from which these incomes were derived.
The legalization procedure stipulates “mandatory” remittance or transfer to domestic banks of the incomes to be legalized, including assets deposited in foreign banks. The government will set deadlines for the legalization of undeclared profits and a special procedure for taxing legalized profits, with the rate of the tax not exceeding the minimum income tax for natural persons, as well as exempt the Ukrainians wishing to legalize their incomes from any liability for having violated tax legislation.
The bill on the legalization procedure has already been prepared and is to be submitted to the Verkhovna Rada in the next few days, first deputy head of the Presidential Administration Vasyl Rohovy announced.
The success or failure of the legalization campaign depends entirely on the mechanism for the repatriation of shadow money. Many experts emphasize, however, that Ukraine offers very few chances for using this capital legally. Also, one should not forget that the primary cause for capital flight was to evade taxes. In a word, so far only the state’s position is clear, to lure back the money to Ukraine as investment, given the failure of law-enforcement to get it back in any other way. On the other hand, the motivation for shadow tycoons to cough up cannot be understood as the factors that actually drove them into the shadow economy have not been removed. These processes, however, can be synchronized. It is quite obvious that the modus operandi of the executive and legislative branches will be closely watched by the persons concerned in order to know how serious the state leaders are. We are entering a stage at which the level of trust in the government and legislature, the main precondition for the legalization of income, is beginning to recover. A businessman, speaking on condition of anonymity, said that he is closely watching how the legalization campaign unfolds but still cannot find any arguments for taking his assets out of the hole.
Anatoly Yermak, a zealous corruption fighter, considers the drive for legalization important. As an initial step which will help start the repatriation of capital to Ukraine, he suggests, “If the money is clean their owners can pay taxes on it and get away with criminal responsibility for opening illegal accounts in foreign banks and tax evasion.”
On the other hand, Yermak continues, a single law cannot cover all the problems related to legalization and changes in the Criminal Code are imminent. The state should “open the door to illegal capital and provide effective economic stimuli for its further use” by offering priority investment areas, like education, health care, culture, and defense. “Respect must be shown for such people who invest their money in projects of vital importance to Ukrainians,” the People’s Deputy believes.
If the state creates effective economic preconditions and the mechanism for legalization, out of the total of $20 billion pumped into foreign banks $6 to 7 billion could be recovered, Yermak stresses. Otherwise, Ukrainian shadow tycoons will simply use the opportunity to legalize their money and continue investing abroad, he concludes.
