How can Ukraine fix its customs service?
The Ukrainian customs service is decrepit and corrupt, obstructing business and sucking revenue out of the government.
Accounting for Hr 263.6 billion ($10 billion) of income for the 2017 budget, which anticipates $27 billion in revenue, the government estimates that corruption in customs deprives the government of nearly $2 billion per year. The country made Hr 202.3 billion ($7.78 billion) off of customs revenue in 2015, according to the Finance Ministry.
Ukraine’s customs service does not only collect import and export tariffs – the agency, which falls under the State Fiscal Service, is also tasked with collecting value-added tax and excise payments on imported goods.
Now, with the government of Prime Minister Volodymyr Groysman settled in after 150 days in office, many are clamoring for reform in the area.
International Monetary Fund chief Christine Lagarde suggested that passing new legislation in the area would be key for the country’s “medium-term sustainability,” and perhaps for receiving the next installment of IMF loans – which now stand at roughly $7 billion out of a potential $17 billion until the start of 2019.
“The focus should be on improving tax and customs administrations,” Lagarde said.
due to smuggling and corruption in the tax service is impossible to estimate.
“Many goods go totally around the system, so it’s impossible to say precisely,” said Nikolai Larin, project manager at the Association of Importers and Exporters. Larin added that the amount of money the customs service submits to the state budget is only about half of the revenues that would be collected if all goods passed through customs.
Groysman said in April that the government loses up to Hr 50 billion ($1.9 billion) due to corruption and smuggling in customs, citing unnamed experts.
Other problems in customs are similar to those that afflict the rest of the civil service. Customs officers are paid salaries as low as $150 each month, for example.
“When your daily earnings could outstrip your monthly legal earnings, then the temptation is great,” said Tetiana Ostrikova, a Samopomich Party member of parliament on the tax and customs policy committee. Ostrikova added that one “hoof” (customs officials’ slang for money earned off the books) would regularly add up to $150 or $200.
Another issue stems from the ability of importers to declare their goods at any customs point they desire, and not the point at which the goods physically enter the country - a system that allows people to deal with customs officials with whom they may have developed a favorable relationship. Since regional customs offices often do not share data, it also means that customs officials will not necessarily know which goods have physically passed through their port.
Lack of information about customs pervades the government due to a quirk in Ukrainian law that restricts all customs information to within the State Fiscal Service.
Ostrikova said that even the deputy finance minister in charge of customs, Yevhen Kapinus, does not have unfettered access to customs data because of this legislation.
“This allows the customs service to keep all of this in a black box,” Ostrikova said.
Yuriy Draganchuk, an adviser to Finance Minister Oleksandr Danyliuk, confirmed that his ministry lacks access to information from the entire State Fiscal Service.
“The information we receive [from the SFS] is impersonal, we don’t receive information about concrete enterprises and people,” he said. “We plan to make a completely separate IT structure that combines information from the SFS, treasury and our ministry.”
Groysman’s government has created a system of “mobile groups” to attempt to solve corruption in the customs service where it appears, in what has been touted as an aggressive effort to halt smuggling.
There are 20 groups, whose teams are formed by employees from the National Anti-corruption Bureau of Ukraine, the National Police and the State Fiscal Service. The teams are supposed to travel from customs point to customs point, rooting out smuggling rackets.
But Ostrikova has been disappointed with the initiative’s progress so far, saying that smugglers were often informed of the group’s arrival in advance.
“They don’t wait up for the mobile groups,” she said of the smugglers.
Andrew Zablotskyi, a customs attorney at law firm Sayenko Kharenko, said that Ukraine’s association agreement with the European Unionmandated certain legal changes, including introducing a requirement that importers need to declare goods at the border points at which the goods enter.
“The EU says that if you signed the EU association agreement, you need to comply with the rules... and place the state control in frontier offices,” Zablotskyi said.
He added that a serious problem with adopting this law was a lack of money in the state budget to fund the changes, and the fact that the government would need to consolidate its sanitary and health control systems at the border points, and not in the main cities, where they are currently located.
One proposal to modernize the customs service would have seen part of the institution’s functionality outsourced to British aid organization Crown Agents. But Ostrikova said that finding the right people was not the problem. “We have the people,” Ostrikova said. “Our customs over the past 25 years turned into a means for living. Everyone wants to earn more off of customs.”
Achieving independence Ostrikova is proposing that Ukraine run a Nabu-style contest for new customs officials, by which they would be vetted as not having participated in corrupt activities.
“There should be new people,” Ostrikova said. “It should be people with a different consciousness.”
The deputy went on to say that information sharing both