State customs reforms – identified as a priority by President Volodymyr Zelensky – is a key aspect of our work at the Office of Simple Solutions and Results. The simplification of the car customs clearance procedure lies at the core of this very timely reform. If implemented, it will eradicate corruption and improve the well-being of Ukrainians.
Average Ukrainians don’t usually interact with customs much throughout their lives. However, car clearance is one of the rare cases when they have to engage with the customs system. Over 500,000 cars are annually cleared in Ukraine.
Corruption at customs runs deep. As a result of the existing customs clearance scheme, the state budget loses up to $400 million annually only from car clearance, and about $150 million remains in the pockets of vested interests. The price of a car is hugely underestimated and, conversely, the customs duties are not fully paid.
How much is paid for car clearance at the customs in Ukraine depends on the price of cars. There are quite a few ways to manipulate it. Some of these include the indication of non-existent damage and malfunctions of the car, change of car modification, forgery of sale contracts (merchants, invoices), change of odometer readings (artificial increase or decrease of car mileage). We propose to move away from the principle of customs clearance based on the cost of the car and to automate the processes.
With over half a million cars being cleared at the Ukrainian customs annually, there is a clear demand for regulatory change. The human factor during customs clearance has to be removed, and transparency must be introduced. We, therefore, propose to make it unnecessary to personally visit the customs service and to deal with customs brokers for the car clearance.
Digitalization is instrumental in helping us fight corruption at the customs. Car clearance procedure should be time and effort efficient, and in order to achieve that, we could leverage the Diia application. The process should be simple. Importers should not be required to fill out or declare anything. Instead, it should be enough to only provide a technical passport, and Diia will automatically calculate the price he needs to pay to legalize the imported car.
After the reform, to legalize the vehicle, it will be enough to provide the customs officer with a technical passport which includes the model code, manufacturing date, engine capacity, and fuel type and so in a few minutes importers should be able to leave customs. They will then have 30 days to pay the automatically calculated amount by card from any place. The car will be considered cleared then.
Compared to other countries, the price of car clearance in Ukraine is very high, and sometimes importers need to pay twice the actual price of the car just to legalize it.
Right now, importers have to pay a 10 percent customs duty, an excise tax, and VAT to legalize the car. We propose to have only two payments: excise duty, which must be calculated according to a fixed formula; as well as VAT in the amount of 20%, which will be charged on the amount of this excise tax. The customs duty, respectively, will be 0%. The cost of customs clearance should be gradually reduced over the next five years. This will reduce the costs borne by importers by 30%. At the same time, the reform won’t bring any losses to the state budget.
The draft reform was presented at the latest National Reforms Council meeting, and it was supported by Zelensky and other members. They provided us with valuable feedback on how to improve the formula, and we are currently working on incorporating their suggestions.
This will be very tangible reform and every citizen will believe that Zelensky and his team will kick off inevitable changes in our country and specifically in the customs. Our next step is to submit the relevant draft law to the Verkhovna Rada. We have already consulted with the stakeholders, so I hope that this law will receive the support it deserves and will be voted on and implemented as soon as possible.
The proposed set of customs reforms will allow us to prevent corruption at customs, make car customs clearance more affordable, boost car imports and reduce budget losses significantly. I am confident that the reform will be a success.
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.
