The Cabinet of Ministers on March 6 affirmed its earlier decision to split the State Fiscal Service into two separate bodies: a State Tax Service and a State Customs Service.
The initial plan to split up the State Fiscal Service was announced in December. The Ministry of Finance believes that this step will improve Ukraine’s ability to collect taxes and increase the accountability of the tax and customs authorities. The State Fiscal Service was one of the most corrupt organs of the Ukrainian government.
A committee headed by deputy finance minister Sergiy Verlanov will oversee the reorganization. Verlanov told media that the division will improve the work of both committees and make them more transparent.
The State Fiscal Service replaced the old Ministry of Revenues and Duties, which was created by former president Viktor Yanukovych, who fled the country during the EuroMaidan Revolution of 2014.
This ministry, which had merged the previously separate tax and customs services, was infamously corrupt, with its headquarters containing amenities such as saunas and Jacuzzis, according to media reports.
Much like its predecessor, the State Fiscal Service was a single body with the authority to collect taxes and enforce customs. It also inherited some of the predecessor’s corruption. According to former finance minister Oleksandr Danylyuk, the service’s customs division represented the biggest fiscal “black hole” in Ukraine.
Officers at customs checkpoints had a great deal of power to extort bribes, set tariffs and enable untaxed smuggling at their discretion. Government officials and watchdogs have widely suspected the smuggling to be directed by powerful customs officials. According to the Ministry of Interior, Ukraine loses about a quarter of all customs fees, which is $4 billion per year.
However, the country loses even more in unpaid taxes – experts estimate the amount of lost tax revenue to be over $40 billion per year.
The division of the State Fiscal Service is being billed as a reorganization rather than a liquidation, which means that tax or customs officials will be transferred to the new bodies instead of being dismissed, according to a report by Liga.
Some financial experts told media outlets that the reorganization may do little to tackle corruption and is a side effect of different government factions vying for the illicit revenue streams.
Danylyuk had been working on creating the Financial Investigations Service, which would tackle some of Ukraine’s biggest financial crimes. However, with the former finance minister’s removal by Prime Minister Volodymyr Groysman in June 2018, the new service is still in the works.
Groysman announced in October that once the service is created, it would be subordinate to the Cabinet of Ministers, which has raised concerns that it will be compromised by politicians and prove ineffective.
