Ukraine’s big tax deadbeats owe state at least $2 billion
Earlier this year, the Ukrainian authorities effectively placed a bet that business, if tax rules were tweaked a bit, would begin to contribute more to the Ukrainian budget.
And the bet appears to have paid off — Ukraine’s State Fiscal Service reported in July that in the first half of 2017 it had already collected more than $6 billion in taxes from Ukraine’s large enterprises. From business as a whole it collected 20 percent more in taxes than over the same period of 2016.
To achieve the feat, parliament, among a host of other measures, raised the minimum wage for Ukrainians, canceled custom tax discounts and ended special social tax benefits for agricultural businesses.
Despite this, Ukraine still faces a huge problem of uncollected tax debts: As of August, Ukrainian business owed Hr 76 billion ($2 billion) to the state. That’s about 10 percent of Ukraine’s budget (Hr 790 billion) expenditures.
It’s a growing problem too — over the first half of 2017, the amount of taxes owed to the state rose by more than $308 million.
The State Fiscal Service reported in July that this year more than $77 million in debts were written off as unrecoverable. Experts say that over the last three years the state has written off more than $577 million.
State enterprises, banks, and private mining companies are among the biggest debtors in Ukraine.
In Ukraine, it’s better for a business to declare it has racked up a tax
Ukraine’s top 10 biggest debtors
50 percent state-owned, 42 percent owned by Ihor Kolomoisky’s Privat Group debt to the state, and then not pay it, rather than evade paying taxes, Illya Neskhodovskiy, an expert at the Reanimation Package of Reforms think tank, told the Kyiv Post.
“Not paying taxes is a good way to become rich in Ukraine,” Neskhodovskiy said.
Dmytro Syrota from the SDM Partners law firm told the Kyiv Post that legally speaking, “tax nonpayment” is not the same as tax evasion.
“Tax evasion means the creation of shady schemes that would allow someone not to pay taxes — intentionally committing a crime. Nonpayment is when an enterprise acknowledges it has debts, but declares that it can’t repay them for various reasons,” Syrota said.
Top tax dodgers
Maryliya Bosakevich, the spokesperson of the head of the Major Taxpayer’s office of the State Fiscal Service of Ukraine, sent a list of the biggest tax debtors in Ukraine to the Kyiv Post on Sept. 7.
As of September, Ukrnafta, affiliated with oligarch Ihor Kolomoisky, is the largest debtor in Ukraine, with a debt to the state totaling $502 million.
Kolomoisky ( worth $1.4 billion) and his business partner in Privat Group Gennadiy Bogolyubov (worth $1.2 billion) together owe the state more than $615 million in unpaid taxes. Even the soccer club Kolomoisky owns, Dnipro FC, owes more than $10 million in taxes.
Other major debtors were Ukrainian banks undergoing liquidation: Delta Bank ($76 million), Pivdenkombank ($34 million), and Finance and Credit Bank ($31 million).
Some of the biggest debtors are companies owned by the state itself.
State power companyTsentrenergo, linked to Ihor Kononenko, a close ally of Ukrainian President Petro Poroshenko, owes more than $27 million to the state. Ukrzaliznytchpostach, one of state railway administration Ukrzalyznytsia’s main suppliers, owes $13 million.
The state-own coal mining enterprises in the top-20 debtors list owe a total of more than $115 million. Many are located in the Russianoccupied parts of the Donbas.
While the State Fiscal Service continues to tot up the tax debts of all of the Ukrainian-owned businesses in the occupied parts of Donbas and Crimea, the service considers these debts to be unrecoverable.
Meanwhile, the tax debts of businesses in the rest of Ukraine grew from $2.6 billion in February to $2.9 billion by July. Neskhodovskiy said the main reasons for the growth are a poor economy, flawed tax legislation, tax dodges, and political patronage.
Financial news website Ekonomychna Pravda recently reported that banks undergoing liquidation owe a total of around $230 million to the state, and that the debt is growing due to flawed tax legislation. For example, when a bank is undergoing liquidation, the law on deposit guarantees excuses bank clients from paying taxes.
“However, the banks aren’t excused, as technically they are not yet considered to have gone bankrupt. Those at the liquidation stage are selling off their property, so they are obliged to pay goods and services tax,” Neskhodovskiy said.
Most of the other debtors of Ukraine are state-owned or partly state-owned enterprises, the expert added.
Neskhodovskiy said the State Fiscal Service can demand businesses pay the taxes they declare. However, most state-owned debtor companies in Ukraine have powerful patrons in government.
“These patrons … push taxmen into not enforcing sanctions against such companies,” Neskhodovskiy said.
While the State Fiscal Service press service denies it is under any pressure from government, saying it acts according to Ukrainian tax legislation, one does not have to look far to see a possible example of such patronage.
The National Anti-Corruption Bureau of Ukraine, or NABU, on
March 2 gave a notice of suspicion in a corruption case to Roman Nasirov, the head of the State Fiscal Service himself.
The bureau’s spokeswoman Daria Manzhura told the Kyiv Post on March 2 that Nasirov is a suspect in an embezzlement case linked to state-controlled natural gas producer Ukrgazvydobuvannya.
The NABU accused him of illegally allowing participants in an alleged corrupt scheme to delay tax payments, Manzhura said. Lawmaker Oleksandr Onyshchenko, who fled Ukraine in 2016, was one of the participants of the scheme, she said.
After f leeing Ukraine, Onyshchenko released compromising information on Nasirov and Poroshenko.
Onyshchenko said that in 2016, Poroshenko had told Nasirov to delay tax demands to Onyshchenko’s mineral mining companies. Onyshchenko claimed that this was done so he could fund vote buying for Poroshenko in parliament.
President has denied Onyshchenko’s allegations.
The opendatabot database reads that Nadra Geo Center, a mineral resource extracting company linked to Onyshchenko, indeed owed more than $57 million in taxes to the state as of August.
Another oligarch owes even more to the state than Onyshchenko. But Kolomoisky, having artfully maneuvered the state into taking on the massive debts of his former PrivatBank, has had no need to flee the country.
Before PrivatBank’s nationalization in December, Kolomoisky visited the National Bank of Ukraine about 30 times, negotiating the state takeover of the country’s largest private bank. When the Finance Ministry subsequently took over PrivatBank from Kolomoisky and Bogolyubov for a symbolic payment of Hr 1, it also took on $3 billion in unpaid insider loans.
The Finance Ministry did so to stave off the collapse of the bank, which, if it had fallen, could have taken the rest of Ukraine’s banking system down with it.
Top tax debtor Ukrnafta is also linked to Kolomoisky, via the oligarch’s Privat Group, which owns 42 percent of the company’s shares. Another 50 percent belongs to state oil and gas company Naftogaz of Ukraine, but Privat Group’s stake is big enough for it to block any moves by the board that it deems unfavorable.
Neskhodovskiy said debt built up because Ukrnafta’s it stopped paying taxes in 2013, and was then fined for non-payment.
“Kolomoisky sued the state for its attempts to take away his share in Ukrnafta. Then he refused to pay the debts until the state surrendered. Over four years the fines increased the debt significantly, so now if the enterprise decides to repay it, it will collapse,” Neskhodovskiy said.
Ukrnafta could not be reached for comment.
Syrota said that businesses that declare tax debts but don’t pay them might be fined from 10–50 percent of the sum of the debt.
“Top managers might also face criminal charges, depending on the case,” Syrota said.
According to him, an enterprise that fails to pay more than $30,000 can face fines of from $652 to $1,300. Those that owe billions can only be ordered to pay up to $15,364 and be prohibited from doing the same type of business.
While a debtor can always opt to file an appeal with the State Fiscal Service, the service rarely cancels one of its lower office’s decisions, so the most effective option is to go to court, Syrota said.
The State Fiscal Service press service told the Kyiv Post the service has been doing everything possible to force the biggest debtors to pay up. However, the debtors have fought back.
For example, Bosakevich wrote, after tax officials sent a debt payment demand to Ukrnafta and arrested company property worth $443 million, a court later canceled all of the moves taken against Ukrnafta.
“The amendments to the tax code of Ukraine (that allowed tax officers to recover tax debts if the sum is more than $192,000 without a court warrant) helped us recover Hr 176 million ($6 million) from Ukrnafta,” Bosakevich wrote.
But the service still hasn’t got its hands on that money, because Ukrnafta has been using the National Bank of Ukraine’s Instruction 22 to put off payment.
According to NBU Instruction 22, the bank servicing the debtor is permitted to make transfers to the bank collecting the debt for the fiscal service out of banking hours (9 a.m.— 5 p.m.)
However, the bank collecting the debt is not permitted to accept such after-hour transfers.
The big debtors frequently follow Instruction 22, and send the money they owe after 5 p.m. The transaction is refused and the money is promptly returned to the debtor, Neskhodovskiy said.
The State Fiscal Service has asked the Finance Ministry to cancel Instruction 22.
Billionaire oligarch Ihor Kolomoisky (C) speaks to Naftogaz representatives during a Ukrnafta oil and gas company meeting in Kyiv in May 2015. Ukrnafta is a 50 percent state-owned company, with Kolomoisky’s Privat Group owning 42 percent. Ukrnafta owes $500 million in unpaid taxes to the state. (Ukrinform)