A series of court rulings are putting the reform of Ukraine’s State Fiscal Service at risk.
Ukraine is supposed to split the service – which has frequently been mired in corruption – into two separate bodies: the Tax Service and the Customs Service.
However, on April 17, a Ukrainian court blocked the appointment of the customs chief, while another court is moving forward to block the appointment of the Tax Service chief.
In the meantime, a special commission has recommended to appoint Deputy Finance Minister Serhiy Verlanov to head the newly established Tax Service.
The commission was formed by the Ministry of Finance and includes lawmakers, high-ranking government officials and representatives of non-government organizations.
The ministry is now fighting back against the lawsuits that would halt the appointments. On April 22, it responded to the suits, stating that the division of the Fiscal Service is a requirement for receiving future financial assistance from the European Union and the International Monetary Fund, or IMF.
Tax battle
The initial plan to reform the Fiscal Service was put forward in December. Besides dividing the agency, the reform planned to dissolve the tax police.
In a January statement, the IMF supported the long-awaited reform. Two previous heads of the Fiscal Service – Roman Nasirov and Myroslav Prodan – have both been charged with corruption in separate cases. They are the highest government officials in Ukraine to face such charges.
According to former Finance Minister Oleksandr Danylyuk, the service’s customs department represented the biggest fiscal “black hole” in Ukraine. And the tax police have long been regarded as an obstacle to doing business in Ukraine.
On March 6, the Cabinet of Ministers affirmed the decision to split the Fiscal Service, stating that the heads of the newly established tax and customs agencies must be appointed through a transparent tender by the end of April.
However, two lawsuits were filed against the cabinet’s decision to conduct the tender for the heads of the newly created agencies.
The first lawsuit was filed by Nasirov, who was fired in 2017 and is fighting to win back his job. That firing violated official procedures, according to a Ukrainian court which ruled to reinstate Nasirov in December 2018. The Cabinet of Ministers had appealed.
The second lawsuit was filed by Andriy Antonyshak, a lawmaker from the 135-member Bloc of Petro Poroshenko faction in parliament. On April 17, a Kyiv court took Antonyshak’s side and canceled the procedure to appoint the customs chief, stating that it violates the rights and freedoms of the plaintiff.
Antonyshak filed the lawsuit because the whole process was rigged, he claimed in a post on Facebook. According to him, Verlanov and Maxim Nefyodov, a deputy economy minister, were appointed to take charge of tax and customs, respectively, months before the official competition was declared.
As deputy head of the Ministry of Finance, Verlanov was responsible for creating the commission that will eventually appoint the heads of the tax and customs agencies. Antonyshak termed this a conflict of interests.
On April 16, while participating in a talk show on Ukraine’s 112 television channel, President Petro Poroshenko said that Nefyodov would be appointed head of the newly created Customs Service. His statement came weeks before the official appointment competition ended, implying that the results were already decided.
The president’s office later stated that the president commented because Nefyodov was the frontrunner, but that no official decision had been made.
In a comment to Economychna Pravda, Verlanov said that because both society and international financial institutions support the fiscal reform, only those not interested in reforming the country are against appointing the agencies’ heads.
Nefyodov made a similar comment to Economychna Pravda.
“You know the amount of black cash (going through customs) and how many influence groups there are. Therefore, they will cast doubt on the competition at all costs,” he said.
Political analyst Volodymyr Fesenko says that the court ruling freezing the reform favors those who participated in criminal customs activity over the past decade.
“The government will appeal and, if necessary, will find workarounds to implement its decision (to hold an open tender),” said Fesenko. The reform is much needed and has been agreed with Ukraine’s foreign donors, he added.
The Ministry of Finance issued an official statement on April 22, announcing that two additional cases had been opened against the appointment of the Tax Service chief.
The ministry said that the government is appealing to cancel the earlier court ruling and to resume the competition to select a customs chief. It is also working to prevent the cancellation of the competition to select the tax chief.
“(The reform) is a prerequisite for receiving assistance from the fourth EU macro-financial assistance program and under the IMF program,” the ministry said.
