BY
Certain things are traditional
in Ukraine when it comes to the New Year.
Among those perennials are
changes to the tax system. Indeed “с новым годом” could be a secret code for inevitable tax system
tinkering.
(For example 1st January 2015
brought about changes to the Tax Code as required by the IMF when Ukraine was
desperate for money. As it no longer is IMF dependent, clearly it can be
expected that the political will to further meet IMF requirements will
evaporate within the Verkhovna Rada – though not necessarily within the Cabinet
or Presidential Administration. The February 2017 tranche may never
arrive.)
This year Draft Laws 4117 and
3357 submitted by Chairwoman of the Verkhovna Rada Tax and Customs Committee
Nina Uzjanina look set to try and (radically) change the tax system once again.
Naturally there is nothing
wrong with policy (and any associated legislative) change as long as that
policy is will be effective rather than ineffective – and certainly not
counterproductive. In this particular case, to be blunt, if these drafts
laws are passed then for them to be effective there would ideally be a period
of education as to what the system is, how it works, and the responsibilities
of taxpayer and State within it.
Hence 1st January may
traditionally be an ideal time to adopt a new Tax Code or amendments to it, but
attempts at changing that Tax Code in November with so little time for
“education” is probably not such a wise move. This is perhaps
particularly the case when part of the draft legislation effects a move from a
“paper” tax administration to “e-tax” administration for commerce across the
entire nation.
There is no need to go into
any of the proposals within the draft legislation in detail when there are some
fundamental questions to ask first.
A reader will perhaps be
reminded of the still on-going debacle that is the e-declaration for the higher
echelons of those holding public office. (Although it is a good bet that
almost all those required to make such e-declarations will do so, it is what
follows thereafter regarding system functionability, legality, security, and
those repercussions upon criminal liability that are far less certain.)
The most obvious question
regarding a national e-commerce tax system is whether the entirety of its commercial
entities have access to “e”, or rather the Internet. Not only with regard
to Internet coverage but also access to the hardware to actually comply with
any e-commerce tax declaration.
(Who pays for the hardware
will become a very prickly social/business issue too – especially for the very
small business outlets.)
The next question, on the
presumption the entire nation is “on-line” and possesses the relevant hardware,
is whether they will actually understand the e-commerce system, and if they do,
will their customers who may require (or simply) want “paper” as a result of
their transaction?
Also, no differently from the
e-declaration system, there will be big questions relating to data security,
system integrity and reliability, and in this case actual tax payment
confirmation – or not.
If the system is compromised
due to poor security, how to insure the data only not missued but also is not
wiped by those that nefariously enter? How much tax would be lost between
the time of the last system back-up and eventually getting it back on line?
Is Ms Uzjanina proposing a “high side” system used by literally millions
of “low side” users in such a system? Not an impossibility of course, but
it would require a filter that prevented “high side” being sucked out through
“low side” as the IoT is becoming quite a hazardous place when it comes to
defending system integrity.
How much would all this cost?
Undoubtedly Ukraine will adopt such a system sooner or later – as it
should – but is it a priority?
Arguably it could be said it
will assist in bringing the black/grey economy into the white – if the system
infrastructure (both hard and soft), policing, and the business will is there
to facilitate it. If that were the case the argument is that it would
therefore swiftly pay for itself. It would also remove a lot of person to
person interaction with the tax authorities thus theoretically reducing
opportunities for corruption.
Nevertheless, societal
perceptions count, and many will ask if there are more pressing priorities for
the limited budgetary funds that have to be met in the immediate term?
Needless to say if these draft
laws are adopted (despite some questionable detail deliberately omitted here)
it would certainly be wise to allow for the parallel running of both
paper and e-systems for a (fairly lengthy) transitional period – not only
for technical reasons, nor the fact that not all commercial enterprises will
have the ability to comply with an e-system, but also for business and societal
familiarity to occur. In fact is there a reason that both systems could
not or should not run? Would it be prudent to run both?
As usual New Year approaches
and Ukrainians have come to see tax legislation as inevitable as socks,
aftershave and style-less jumpers/cardigans as part of the festive season.
This year is clearly no different.
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