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.

Art­ful dodger

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.

In­struc­tion 22

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)

Olek­sandr Onyshchenko

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