Experts warn of relapse to corrupt ways in VAT refunds
"Is Ukraine’s sickly economy at risk of a relapse? Anna Derevyanko, the executive director of the European Business Association, or EBA, is afraid so.
The source of the malady could be a return of problems in the administration of the value added tax, or VAT, the Ukrainian businesswoman said in an official statement posted on the EBA’s website on Jan. 17. “The repetition of old VAT issues” and the reimbursement delays it causes could result in companies facing “serious problems,” such as “financing their own operating activities, including the payment of wages to employees.”
The government says delays in the registration of tax invoices and settlement adjustments are the cause of holdups in the process. But the EBA, a voice for over 1,000 businesses in Ukraine, says the problems lie with the process of reimbursing VAT itself.
In July 2017, Ukraine launched an automatic system to reimburse exporters, who pay the tax in advance when sending goods abroad.
Derevyanko further expressed her deep concerns on Jan. 24 in regards to recent developments at the customs where there have also been major delays.
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"Businesses have the impression that we are returning to manual ways of adjusting the customs value and indicative prices for goods, as (it) used to be done by customs officers before the amendments to the customs code. And all the achievements — those changes in determining the methods of customs value — slipped, in fact, to a quasi-indicative price determination."
Iryna Stanislavska, head of the press service of the Business Ombudsman Council in Kyiv, an agency that monitors the government’s actions related to business in Ukraine, says that overall, “since the launch of the automatic system for VAT reimbursement in July 2017, we’ve received 1,133 complaints about the suspension of tax invoices from businesses.
“We’ve helped the majority of them, and as a result state bodies refunded a total of Hr 235 million ($8.4 million) to our complainants. Our recent statistics show that the number of appeals on this issue increased during the last quarter of 2018.”
The perspective of going back to the way things used to be is not appealing. Roman Ostrovekh, director of the road department of the Ukrainian branch of Danish logistics company DSV, told the Kyiv Post that “the VAT in Ukraine has been known in the past to be a major niche for corruption to thrive.”
“As before, only a very short list of companies could benefit from reimbursement — then given on a caseby-case basis up until 2015 — what would happen then was that companies could only get reimbursed to the condition that they previously bribed officials.”
What seems to be a step backwards in the customs administration is worrying businesses of coming back to a corrupt system based on bribes.
According to the administration, it might make a request for additional documents and therefore delay the customs clearance for up to 10 days, the EBA says. But the association says that, based on the customs code, this should solely apply if the documents submitted before the customs clearance contain discrepancies.
Delays in the customs and a malfunctioning VAT system could be seriously detrimental to the Ukrainian economy. Losses could be counted in billions of hryvnias, cripple growing companies that want to expand internationally, and send a negative signal to Ukraine’s international partners willing to invest in the country."
A truck is waiting for customs' inspection at the entrance of Odesa's harbor, on Aug. 29, 2016. (Volodymyr Petrov)