How to get rid of rot in state cus­toms ser­vice


LVIV, Ukraine – Will there fi­nally be a crack­down on Ukraine’s cor­rupt cus­toms ser­vice?

Ukrainian Prime Min­is­ter Volodymyr Groys­man, ap­pointed on April 14, is promis­ing one. He has de­clared it a pri­or­ity to end abuses and over­haul the State Cus­toms Ser­vice, which is part of the State Fis­cal Ser­vice.

Smug­gling, bribes paid to cut im­port du­ties, opaque pric­ing of cus­toms clear­ance – all these have long plagued the coun­try’s cus­toms ser­vice, drain­ing bil­lions of dol­lars from Ukraine's of­fi­cial econ­omy into the shad­ows.

"We cur­rently have enor­mous chal­lenges with cus­toms, which on the one hand cater for the needs of the shadow econ­omy, and on the other hand hin­der the de­vel­op­ment of our do­mes­tic pro­duc­ers,” Groys­man said in a video mes­sage posted re­cently on his Face­book page.

To carry out the cleanup, Groys­man has in­tro­duced 20 mo­bile groups of border guards, dubbed the Black Hun­dred, whose mem­bers come from the Na­tional An­ti­Cor­rup­tion Bureau, the Na­tional Po­lice and the State Fis­cal Ser­vice. These rov­ing units are tasked with un­cov­er­ing gray and black smug­gling schemes.

The fee for land (the land tax or land lease fee in the case of lease of pub­lic land) is es­tab­lished pro­por­tion­ally to the nor­ma­tive val­u­a­tion of a re­spec­tive land par­cel. The re­ports from busi­ness of a dras­tic in­crease in the nor­ma­tive val­u­a­tion of land rep­re­sent a threat­en­ing ten­dency. As a re­sult of the re­vised val­u­a­tions, made uni­lat­er­ally by lo­cal au­thor­i­ties, the fees for leas­ing pub­lic land are in­creas­ing sig­nif­i­cantly (up to 45 times in some cases known to us!) with­out the agree­ment of the lessor, and these in­creases are be­ing up­held in the courts. Do­ing busi­ness in such ex­plo­sive con­di­tions is a chal­lenge. How can these risks be pre­vented, or at least made more man­age­able?

As the land fee is be­com­ing a real is­sue for busi­nesses, it’s worth pay­ing spe­cial at­ten­tion to the fol­low­ing ac­tion points: • mon­i­tor the reg­u­la­tory ac­tiv­ity of lo­cal coun­cils (the ear­lier the is­sue is

iden­ti­fied, the eas­ier it is to pre­vent the ap­proval of un­fair land val­u­a­tions); • ob­tain full in­for­ma­tion on tech­ni­cal doc­u­ments for land via var­i­ous re­quests (usu­ally con­sid­er­able ef­fort is needed, be­cause the au­thor­i­ties tend to refuse such re­quests if pos­si­ble); • iden­tify risks in the lease agree­ment or in tech­ni­cal doc­u­ments for the

land plot, which may lead to over­pric­ing; • de­ter­mine if there are flaws in de­ci­sions to ap­prove new nor­ma­tive

val­u­a­tions of land; • gain ad­di­tional time for ne­go­ti­a­tions or post­pon­ing neg­a­tive changes in

val­u­a­tions, if they are in­evitable. De­ci­sions taken on new nor­ma­tive val­u­a­tion are quite of­ten is­sued with er­rors, in­clud­ing pro­ce­dural and ma­te­rial ones, which al­lows un­just land val­u­a­tions to be chal­lenged and nul­li­fied. Although the acts on new nor­ma­tive val­u­a­tions usu­ally af­fect a whole city or area (i.e., are qual­i­fied as reg­u­la­tory acts) they are quite rarely done in full com­pli­ance with re­spec­tive pro­ce­dure. The ap­pli­ca­ble pro­ce­dure en­vis­ages that the ef­fected par­ties be given the pos­si­bil­ity to study drafts and of­fer their own pro­pos­als. How­ever, as a mat­ter of gen­eral prac­tice, land users are usu­ally merely no­ti­fied about the new value post-fac­tum. In other cases, which are quite com­mon, val­u­a­tions are done not for a whole area, but rather for an in­di­vid­ual plot. Such a prac­tice dis­crim­i­nates against 'un­lucky' ten­ants, who be­come obliged to pay rent dozens of times higher than av­er­age. De­ter­min­ing if there are ma­te­rial de­fects in tech­ni­cal doc­u­ments in­cludes a care­ful anal­y­sis of each ap­plied co­ef­fi­cient used in cal­cu­lat­ing the new nor­ma­tive value of the land. Nu­mer­ous cases show that re­spon­si­ble of­fi­cials pre­fer to use opaque mech­a­nisms, which al­low ar­bi­trary ma­nip­u­la­tions of land value. For ex­am­ple, the key com­ponent of the nor­ma­tive value of land is mu­nic­i­pal ex­penses on lo­cal in­fra­struc­ture. Even in the ab­sence of any real in­fra­struc­ture im­prove­ments, the de­clared amounts can be huge, which re­sults in an un­fair land value. It’s not just at the lo­cal level that there is a lack of con­sis­tency in nor­ma­tive val­u­a­tions of land. For in­stance, an or­der ap­proved by the gov­ern­ment in 2013 on the pro­ce­dure for valu­ing land con­tains a co­ef­fi­cient ac­cord­ing to which land in pe­riph­eral prov­inces have an “ur­ban de­vel­op­ment value” that is five (!) times higher than land in the sub­urbs of mega­lopolises like Kyiv or Odesa. A new reg­u­la­tory ap­proach is def­i­nitely needed in or­der to bring sta­bil­ity and con­fi­dence to busi­ness en­vi­ron­ment. But un­til a new reg­u­la­tion is in place, such cases will have to be dealt with on an in­di­vid­ual ba­sis. As pay­ment for land (the land tax and the fee for leas­ing pub­lic land) is con­sid­ered a tax, the nor­ma­tive value is the tax base, i.e., el­e­ment of the tax, and this el­e­ment may be es­tab­lished only with strict com­pli­ance with the tax law as well. Ju­di­cial prac­tice has al­ready con­firmed (and is even now di­rectly stip­u­lated in the Tax Code) that es­tab­lish­ing a new land value has to be done and an­nounced pub­licly be­fore July 15 of the year pre­ced­ing the one dur­ing which it shall be ap­plied, i.e., in the same way as for other lo­cal taxes. Re­spec­tively, there should be some time al­lo­cated to adapt­ing to the new base, and to chal­leng­ing un­fair land val­u­a­tions, if the land user choses to do so. Cur­rent prac­tice shows that by tak­ing this ap­proach, there is ev­ery chance of suc­ceed­ing in keeping nor­ma­tive val­u­a­tions at a rea­son­able level.

A cus­toms of­fi­cer checks a car with smug­gled cig­a­rettes stopped on Ukraine's western Zakarpattya border on May 10. (

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