Zelensky's new income and asset declaration system

Author : Natalia Lebed

Source : 112 Ukraine

The recent initiative of Volodymyr Zelensky to introduce universal income declaration fairly angered a part of Ukrainian society
22:00, 15 May 2019

112 Agency

The recent initiative of Volodymyr Zelensky to introduce universal income declaration fairly angered a part of Ukrainian society. Adopted in 1996, the Constitution of Ukraine, although it survived the political reform, left the rule on income declaration intact. Article 67 of the Basic Law reads as follows: “Everyone is obliged to pay taxes and fees in the manner and amount established by law. Our country has a formal declaration of income, as according to the Constitution, there is free medicine and education.” Economic advisers of Zelensky have invented nothing new, they gave a new life to an idea, which was long written in the legislation.

Approximately the same can be said with regard to the tax amnesty, promised by Ze!Team. Such attempts have already been made repeatedly, but at the same time, the sector of the shadow economy has not been radically reduced.

Related: Ukraine's government adopts decree on creation of State Tax, Customs Services

Tax returns as a sign of a high living standard

Zelensky’s team expert Danyil Hetmantsev, responsible for the economy, finance, and taxation issues, says: “The next point on our proposals is the universal declaration of income. It will not apply only to those who receive income from the state. It would be a universal declaration This is a trick that would allow us to approach the issue in a European way. The point, however, is that in order to approach the issue in a European way, as the Hetmantsev proposes to do, we need to have a European system of taxation. Or at least the American one. Both of them are radically different from what we have now in Ukraine. “Our employer pays salary. And in the USA, for example, everyone pays for himself,” expert assures.

A citizen understands how much he pays the state and has the moral right to control this money and demand effective work from the state. Ukraine would be able to implement this in 5-7 years, not earlier. A big debt will be formed, in addition, Zelensky’s voters will feel some negative vibes, because they voted for everything to be done by pressing a single button, not to fill out some papers and pay for these papers. From a purely psychological point of view, this is quite a reasonable explanation. “In general, the level of debt for utility services at the end of February amounted to a record 2,5 billion USD. There is no doubt that at the end of March, we will see a sharp increase in debts. Of course, it was wrong to conduct monetization in such conditions. Poor people will act as poor people do, and to understand this, it is not necessary to study in Harvard,” Andriy Gerus, energy expert another adviser to president Zelensky, noted.

Related: Law on luxury tax to equalize situation in the country, - MP Rabinovich

Expert Oleksiy Kusch points to the poverty of the population as the main reason why the universal declaration is doomed to failure. “In Ukraine, up to 30% of the population, according to the State Statistics Committee, is at a minimum level of livelihood, when you have to receive subsidies from the state, and you even do not have enough money for medicines and doctors. Only 5-10% who have more than one source of income can accumulate and invest,” he says.

Moreover, even if a Ukrainian has two or three jobs at the same time, he still receives one type of income – income from work. While in the West there is the concept of passive income (from the purchase of real estate, from investing in securities, from playing in the stock market, from participating in systemic entrepreneurship). This is how the middle class in the West lives.

Naturally, when summing up the results of the fiscal year, the Western middle class indicates in the tax return all types of profits. Taking into account the salary from the main place of work, without tax deductions. Oleksiy Kushch explains: in the West, this “dirty wages” before taxation is indicated in the labor contracts. If we are talking about the minimum income, then an employee, in order not to spend money on tax advisers for the year, can ask the employer to deduct taxes when paying wages and to pay already the "clean" income. But the Ukrainians have no such opportunity.

The population will not pay, because when the “D-day” comes, that is, the time of filing the declaration, it turns out that the entire gross salary has long been spent, and there is no money for taxes. And the state will never agree to give its fiscal prerogative to the hands of not very conscientious and sufficiently poor citizens.

Tax amnesty: not this way

Now let us speak about the second initiative of Ze!Team. Danyil Getmantsev, who says that Zelensky “supported the holding of a tax amnesty in Ukraine, recalling the example of Argentina, where in 2016 President Mauricio Macri spent the amnesty of capital and called for the return of money to the country.”

Related: Eco-taxes: mechanism of taxation should be changed, - Poroshenko

“And it allowed bringing to light 117 billion dollars, not only in money but also in other assets. After all, it is necessary to amnesty not only capital but also real estate in Ukraine and abroad, other values,” the expert argues adding that such an amnesty will not affect officials who are suspected of corruption.

Alas, the logical question as to who, then, will be affected by the amnesty, because the criminals are usually amnestied.

“Our draft law proposes that if the proceeds are obtained by criminal means, obtained from corruption or human trafficking, then an amnesty will not apply to them. And if some conditional corrupt official takes advantage of the amnesty and then it is proved that he is a criminal, the money will be confiscated,” he says. Who is this amnesty for? Those, who wanted to live honestly, have long done so. And the black market still exists. The only question is what percentage belongs to the shady business. Now it is smaller, and in the times of Yanukovych, it was significantly larger.

Then it was 60%, now it is around 52%. We have not been developing steadily for at least ten years in a row to calculate the shadow sector.

Recall that in 2015 in the Verkhovna Rada has registered a law “On zero declaration,” which did not provide for mandatory declaration. But it assumed that many representatives of business would want to file such a declaration since they would get a chance to legalize property acquired “in the shadows” and exemption from legal liability for old violations of tax legislation.

Related: Corporate tax in the West: Ukrainian model of taxation looks reasonable

However, the applicants would have to pay “a tax on the declaration of income, property and property rights,” due to which it was planned to replenish the budget. Subsequently, this bill was withdrawn. But in 2016 another one appeared. It proposed to consider the declarants not only representatives of the authorities, but also military and other security officials, each representative of the monitoring and checking services, the entire legal body, notaries, public activists, and the like.

In other words, everyone who has access to material values or money. This would not be a “universal declaration” in the literal sense, but declarations would become mandatory, perhaps, for the majority of the adult population of the country. A year later, such a bill was removed from consideration.

Finally, in 2017, the idea of “zero declaration” came to life again. A draft law “On the legalization of property in connection with the voluntary declaration of property status and undeclared income of individuals” was introduced.

Commenting on the idea of “zero declarations,” Oleksiy Kushch says that Zelensky is in a rush. Because it is necessary to begin not with general forgiveness, but with the removal of the reasons for the emergence of the grey economy: excessive fiscal pressure, overregulation, and dominance of monopolies. But what does Zelensky offer? He wants just to spend some kind of amnesty of capital, without eliminating the reasons – in this case, it will not lead to proper results. Now the business does not seek to come out of the shadow, because it is not profitable,” Kushch assures.

The expert analyzes the example of Mauricio Macri. “The references to Macri are not accidental. Indeed, first of all, this Argentine president outlined such areas of reform as cutting social objects of expenditure. His first and very unpopular step was the changed in the indexation of pensions, as a result of which the state saved some money. Its tough policy had the opposite effect: in 2016, GDP fell by 2.3%, and inflation rose to 40%. The country faced a terrible phenomenon – stagflation.”

And this is despite the fact that an increase in the monetary base of any currency in the amount of 1% of the existing mass gives 3% of inflation. So we can get inflation at 15-20%.

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