Ukraine’s economy has been severely hit by the pandemic. In 2020, real gross domestic product declined by 4 percent, and nominal GDP amounted to Hr 4.194 trillion ($155 million), according to the State Statistics Service. Regardless of the size, all Ukrainian businesses have suffered the burden of quarantine measures not only in terms of lost revenue, but also increased difficulty of compliance with tax, food safety, consumer protection and other regulations. State bodies, however, continued to undertake unplanned business inspections.
In March last year, President Volodymyr Zelensky signed a law introducing a moratorium on tax audits and inspections of all state control bodies. The duration was set between March 18 and May 31, 2020, corresponding to the duration of lockdown. The law made it illegal to conduct document and onsite inspections of business entities, except for inspections related to the budget reimbursement of value-added tax. Despite the moratorium, the budget revenue collected in 2020 exceeded the expectations.
A moratorium on inspections of all state control bodies was also put in place. The said law also prohibited state supervision (control) bodies from carrying out planned inspections in the field of economic activity for as long as quarantine measures are enacted. However, law no 1071-IX passed on 4 December 2021 – cancelled this moratorium thereby putting businesses across the country at the risk of inspection. Since the beginning of 2021, 21,806 inspections have been conducted. 24,238 inspections have not been undertaken due to the inspections moratorium.
In Ukraine, 443 agencies can undertake such inspections. These include the State Labor Service, the State Service of Ukraine on Food Safety and Consumer Protection, the State Emergency Service, the Ministry of Economy, the State Archival Service of Ukraine, the National Commission for the State Regulation of Communications and Information and many others.
The majority of inspections are unjustified and have no impact on our well-being and health. In 2020, more than 90% of the violations found as a result of inspections in 2020 did not pose a risk to human health, although qualified as non-compliance with the requirements of technical regulations, or formal non-compliance.
What the inspections achieve, however, is sustain high levels of corruption in Ukraine under the pretext of compliance. This primarily hurts small and medium businesses. For example, the State Emergency Service charges $300 in bribe per inspection while the State Environmental Inspectorate of Ukraine – $20,000. The State Service of Geology and Subsoil of Ukraine charges $30,000 for conducting no inspections.
Furthermore, there is a noticeable upward trend towards higher fines and more state intervention. In 2019, fines for non-compliance with various regulations subject to inspection became 10-12 times higher.
Certainty and predictability are the key pillars of the rule of law, and we need to be consistent as we seek to preserve and build on them. Businesses have suffered enough because of the pandemic, and generally as a result of Ukraine’s far-reaching economic overregulation that entices corruption. It will take the world and Ukraine years to overcome the economic consequences of the coronavirus crisis. Taking this into account, we at the Office of Simple Solutions and Results propose to extend the moratorium on all inspections till the end of quarantine.
Our experts have drafted the necessary law amendments. However, for the law to be enacted and businesses to be protected, we need the support of Ukrainian parliamentarians. The faster we act, the sooner we will be able to provide businesses with much-needed confidence in the future. In the long run, we should reform a system of state control as such, but for a while let’s introduce the moratorium.
Mikheil Saakashvili has been the chair of the executive committee of the National Reforms Council since May 7, 2020. He served as governor of Odesa Oblast from May 30, 2015, to Nov. 9, 2016. He was president of Georgia from Jan. 25, 2004, to Nov. 17, 2013.
