Ukraine launches reform to tackle bribe culture in tax service

KIEV (Reuters) – Ukraine launched an electronic register on Monday that will automatically refund value-added tax (VAT) owed to exporters, implementing an IMF-backed reform aimed at tackling endemic bribe-taking in the tax service and improving the investment climate.

Businesses are entitled to a government refund on their sales abroad, but many complain that the money is not paid on time and is dependent on greasing the palms of officials at the State Fiscal Service. False VAT claims also drain the public purse.

Kiev has launched a clean-up of the system, backed by the International Monetary Fund, which is supporting Ukraine with a $17.5 billion bailout in exchange for reforms.

The IMF was due to decide on releasing another tranche of aid worth $1b. to Kiev on Monday, having delayed a decision from March.

“Remember this day – on April 3, we launched the system of transparent public control over the VAT refund,” Ukrainian President Petro Poroshenko said at a meeting between government and business representatives.

“Ukrainian entrepreneurs have been waiting for transparency in the VAT refund for 21 years,” he was quoted by his press service as saying. “Unfortunately, the VAT refund system has been nourishing corrupt officials for 21 years. And this had a huge negative impact for the economy.”

Ukraine’s VAT rate stands at 20%, and delaying the refund affects businesses’ liquidity and production processes.

The old system was open to manipulation from tax officials. Changing it will also stop the government from losing billions of hryvnias every year through false claims, the government says.

Poroshenko said the system of verifying VAT claims would be public and that the fully automated process will allow anyone to check whether taxes were being refunded properly and in chronological order.

“The verdict delivery will be strictly controlled under the fixed term, and nobody will be able to postpone without explanations, abolish or exclude from the register this or that taxpayer,” Poroshenko said.

In 2016, Ukraine paid 95 billion hryvnias ($3.5b.) in VAT refunds, while income from the tax stood at 330 billion hryvnias.

The head of the State Fiscal Service, Roman Nasirov, is under arrest and accused of embezzling $75 million. He denies any wrongdoing.

Ukraine has made patchy progress in rooting out endemic official corruption, despite repeated promises from the Western-backed government that took power in 2014 after a popular uprising driven partly by public anger over sleaze.