Constitutional Court’s Ruling On Tax Arrears

Under the Constitution, paying taxes on time is one of the basic duties of a citizen. The government assumes the responsibility for creating mechanisms that ensure timely and full payments. One such mechanism is the tax collateral that is imposed on tax evaders, who must manage their property in a special way until they pay off their debts to the state.

Recently, 48 members of parliament filed a petition with the Constitutional Court, requesting that Item 1.17 of Article 1 and Article 8 of the law “On the Procedure of Paying Tax Arrears to Budgets and Governmental Target-Oriented Funds” be declared unconstitutional. It is these articles that govern the existence and application of the tax collateral.

In the MPs’ view, these legal provisions run counter to Articles 13, 41, and 42 of the Constitution, which protect the rights to own and manage property, because they place economic entities of different forms of ownership in unequal situations as well as authorize a tax authority to impound the taxpayer’s assets without a court order and strip the taxpayer of the right to take legal action against the taxman.

The petitioners believe that a number of clauses restrict the rights of legal entities and individuals to own, manage, and dispose of their property, as well as infringe the right to entrepreneurship.

Judges, however, say that it is unwise to protest against the tax collateral because it is the only sanction that the state can impose on inveterate tax evaders and thus ensure full payment of taxes. Therefore, as reporting judge Valery Pshenychny said, the Constitutional Court ruled that the existence of the tax collateral is quite constitutional. Accordingly, the court rejected the demand of the 48 people’s deputies who, Mr. Pshenychny claims, were guided by their own business interests.

The only thing that the court resolved to change in the current law is the provision that the tax collateral can be imposed in cases where the tax declaration has been filed late. The norm according to which an individual who fails to meet the deadline is considered an inveterate tax evader was pronounced unconstitutional (Article 8, second paragraph of sub-item 8.2.1).

Imposing the tax collateral on all of the taxpayer’s assets (sub- item 8.2.2, Article 8) was also found unconstitutional. “The provision that the tax collateral is applicable to the entire property has in fact been canceled,” the reporting judge said. Before this court decision, an individual could lose the right to freely manage all his property irrespective of the amount of his debt. But it is up to parliament to decide what amount will now be subject to the collateral. In the opinion of Mr. Pshenychny, who compared the tax collateral with “penal sanctions,” this amount should be proportionate to the “tax arrears.”

Whereas before debtor entrepreneurs risked losing their businesses, now that the CC has passed this judgment, things will be much easier, the judge said.

Under the court order, the provisions that were declared unconstitutional became null and void on the day the Constitutional Court handed down this ruling, i.e., March 24. The rest of the law still remains in force.