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Tax amnesty is good, but with current model of governing - it's useless

Author : Oleksiy Kushch

23:25, 20 March 2018

Tax amnesty is good, but with current model of governing - it's useless

Author : Oleksiy Kushch

Problem of existence of the rent-corruption model, which has developed in Ukraine, cannot be solved by simple tools. Here you cannot offer simple recipes, such as: single-step legalization and further protection of these assets, or the power scenario of expropriation - this will completely dismantle the system of state administration and plunge the country into controlled chaos for a year or two

23:25, 20 March 2018

Read original article at 112.ua

112 Agency
 

Each Ukrainian president will begin his term with talk about reforms, themes of historical memory and cultural identity, and end cadence with proposals for a tax amnesty. And the first, second, and third will remain a "hollow" discourse. Too literally our politicians took Descartes' phrase that man is only a thinking reed. Or bamboo. Although our history sometimes refutes the aforementioned "Cartesian" heresy. As a result, over the past 25 years in Ukraine, neither reforms nor a tax amnesty have been carried out, although several countries have made several steps in these areas.

The other day the president voiced the March theses on the future tax amnesty in Ukraine: "I propose once again to return to the discussion of the so-called" zero "declaration. We cannot say that every Ukrainian is guilty of something; we must give every Ukrainian opportunity to pay the relevant tax, in accordance with the law, to get money to Ukraine, invest in the Ukrainian economy and feel himself a free citizen of a free country. "

As it usually happens with us, a good idea was wrapped up in an old, checkered blanket. After all, in order for the electorate to support the innovation, it is necessary to submit the idea in such a way that this very amnesty is needed by tens of millions of ordinary Ukrainians. They, poor, sleep and see how their native state "will understand and forgive" and allow the poor people to return their useless offshore stash to their native land for investment for the benefit of their homeland. The problem is that 90% of Ukrainians have nothing to do with the issue of the tax amnesty: they simply have nothing to indicate in their declarations, except for the used car, the wife's fur coat and the stash in the amount of several thousand USD. And a simple Ukrainian will be afraid of public obstruction: he worked all his life and don’t have even a house. So the majority of inhabitants of the country will simply be ashamed to fill zero declaration. It's a shame "for aimlessly lived years."

That is why we can agree with the statement that "we cannot say that every Ukrainian is guilty of something." And this is the holy truth: the only guilt of a simple Ukrainian is that after the 90s he did not know how to live, but at the same time he gave the opportunity to earn money to a limited circle of others.

Although there is nothing surprising in such statements: the isolated reality of our politician simply ousted the surrounding reality from the minds of the officials. With them, a classic psychophagus occurred: the repression of their consciousness in the stressful situations and psychotoxic reality. So, for example, the hero of Leonardo di Caprio in the famous film "Shutter Island", guilty of the murder of his wife, imagines himself a federal marshal, who is looking for her imaginary killer. He can be cured only by constructing the reality he created in the real world - only when he sees the absurdity of this design, the patient can regain his true consciousness. Something similar is observed among Ukrainian politicians: if every your day is full of comfort and at the same time you observe a pauper country in the window of a personal car, inevitable psychological discomfort will arise, it will be necessary to seek a painful compromise with a conscience. Such dissonance is fraught with erosion of the person. That is why it is much easier to create your own special reality, with a joyful country that is on the path of reform, in which there are millions of happy citizens who are separated from total prosperity by only one - undeclared millions and billions. Of course, you can try to heal our politicians using the methods of modern psychiatry. For example, for a couple of days to create the very reality that they imagined. And to begin with, pelting them with millions of citizens’ addresses asking them to legalize the hidden millions. Maybe then, realizing all the absurdity of what is happening, political elites will stop their "hungry games" with a disoriented electorate.

In fact, the legalization of capital is necessary for ordinary Ukrainians for a different reason. To date, most of the national wealth, alienated from society as a result of the privatization of the 1990s and the functioning of the rent model of the economy in 2000, has settled either on offshore accounts or in the form of cash resources that serve the shadow economy. That is, they are working for the prosperity of other countries, which, without the pain of remorse, offered their quiet financial harbors for dirty capital.

According to the non-governmental organization Tax Justice Network, our country has entered the top ten countries with the largest outflow of capital as of 2011. During the twenty years of independence, $ 167 billion was withdrawn from the country. For comparison, $ 496 billion was withdrawn from Kuwait, and $ 138 billion from Kazakhstan.

Approximately $ 40 billion was added to this amount as a result of the flight of the elites of the times of Yanukovych and the arrival of the new elites afterwards. Thus, in Western accounts there may be up to $ 200 billion of Ukrainian money. Some of them were brought back to the country back in the form of loans from non-residents and direct investments in equity - not without reason the largest investors in the Ukrainian economy are Cyprus and the Netherlands, where our oligarchs and sub-oligarchs keep their assets. In addition, some of these resources were invested in Western tangible assets, political cycles in Ukraine and banally spent for the luxurious vacations in Courchevel. Therefore, we are talking, most likely, about 50-100 billion dollars, which can theoretically be returned to the country.

In addition, approximately 300 billion UAH are in cash circulation outside banks, and some of this amount can also be returned to legal economic turnover. Regarding the cash currency stash in Ukraine estimates vary, but it is clear that it is also about billions of dollars.

In the world economic science, much attention has recently been paid to the problems of the so-called unobserved economy. According to the World Bank's analytical studies, at the moment there are five groups of the shadow sector:

    shadow operations;
    illegal activities;
    operations in the informal sector;
    own production of households for household needs;
    part of GDP, "lost" in the process of collecting statistical data.

Under shadow production in the world experts understood as concealing part of the income or expenses associated with the payment of taxes and mandatory contributions. In Ukraine, this is the notorious tax optimization, including concealment of export earnings abroad and cash wages.

Illicit production is the production of goods, the provision of services prohibited by law (prostitution, drugs, weapons), and the conduct of activities without appropriate permits and licenses (extraction of minerals, for example, amber, currency exchange operations without a license from the NBU, production of alcohol and tobacco without a license).

Let's try to estimate the parameters of shadow economy based on the official GDP figures for 2016. Let’s take three coefficients of the level of shadowing: high (50%), medium (20%), low (5%). To a high level we will include such branches as: agriculture, real estate operations, trade, energy, construction, medicine. To the average level we will refer processing, extractive industry, science and education. To industries with a low coefficient of shadowing - finance, telecommunications, transport.

The total volume of the shadow sector, determined expertly, will be 600 billion UAH, or 25% of GDP.

With regard to illegal sectors of the economy, their capital intensity can be determined in the $ 5 billion.

The informal sector and household production can be estimated at $ 2-3 billion.

The general parameters of the unobserved economy thus reach the equivalent of $ 30 billion, or 30% of today's GDP. This is without accounting for the corruption component and the financial basis of the rental economy, which may amount to another 20% of the gross product (the total amount of the hidden economy exceeds 50% of GDP).

The legalization of a part of this sector, plus a tax amnesty, can increase the present level of GDP one-time, and consequently, the state budget revenues by 15-20%. Plus, the inflow of quasi-investments in the form of legalized funds, as a result of which the volume of FDI could increase to $ 100 billion, that is, in fact, double. For Ukraine, legalization can be as much a financial lever as the EU macro-financial assistance and debt cancellation made for Poland. Well, for a simple Ukrainian, all this can be converted into real income growth at the level of 50%, plus a nominal strengthening of the hryvnia rate of 40-50%, that is, each of us will become richer at least twice. And this can happen as rapidly as the impoverishment in 2014-2016.

But the problem of existence of the rent-corruption model of governance of the country, which has developed in Ukraine, cannot be solved by simple tools. Here you cannot offer simple recipes, such as: single-step legalization and further protection of these assets, or the power scenario of expropriation - this will completely dismantle the system of state administration and plunge the country into controlled chaos for a year or two.

In Ukraine, only comprehensive model of tax legalization may be applied, which will include the amnesty model, a new fiscal model for business, and a system for protecting titles of property for basic assets (land, real estate, corporate rights) from a "clean slate". Unlike the US or Italy, we cannot afford this "game" on an ongoing basis, when amnesties occur with a permanent frequency. For Ukraine, this is a step-by-step solution, and it is necessary to implement it at the beginning of the political cycle, when the credibility of the current government is at its maximum, not the minimum. Technologically, this may look like buying government securities at the expense of legalized funds for up to three years. This is the time it takes to form a special reserve fund for the implementation of the new industrial policy and structural adjustment of the economy. From 10 to 25% of the amount of legalization should be withheld in the form of a special tax with the subsequent transfer of these resources to finance of science and education. Well, 75-90% should be invested in state three-year bonds at a small percentage - only after this the funds will be legalized in the Ukrainian system of coordinates. Thanks to this tool, the state will receive a medium-term cheap borrowed resource and will be able to realize the objectives of the new industrial policy, for which it will not be necessary to walk around the world with an outstretched hand and beg for the loans. The success of this process will be facilitated by the progressive movement of Ukraine to the international standards of BEPS (combating the erosion of the taxable base), as well as the inclusion of our country in the international system of tax information exchange.

Otherwise, if the legalization is carried out in the current coordinate system of the rental monopolized economy, where "each for himself, and God against all," such a procedure will lead only to a fully predictable result: taxes collected from legalized sums, after a very short time with using the tools of state subsidies will appear in the pockets of the same personalities who paid these same taxes.

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