Draft Laws on Tax Amnesty - RADA Program Comment

Tue, 30/03/2021 - 11:30

Among draft laws to be considered today are bill on tax amnesty.

Below, please find RADA Program comment on the bills.


Based on an analysis of the group of draft laws aimed at introducing a “tax amnesty” (the main one in this group is Draft Law No. 5153, the other three, Nos. 5154-5156, being derivatives thereof), one can identify the pros and cons in respect of the adoption of government decisions aimed at achieving this goal; moreover, there are certain critical remarks as to the quality of Draft Law No. 5153.

The pros:

  1. The tax amnesty contributes to a partial de-shadowing of the economy.
  2. It is a way to combat the erosion of the tax base and the movement of profits abroad.
  3. The payment of a one-time fee in the process of legalization of capital will add a considerable amount to the State Budget.

In total, all these factors will contribute to the development of the economic and tax system of Ukraine.

The cons:

  1. The amnesty will place bona fide taxpayers in a disadvantaged position compared to citizens who previously evaded paying taxes and used non-taxable income for their own enrichment; this does not comply with the constitutional principles obliging everyone to pay taxes and fees in the manner and amount prescribed by the law (Part one, Article 67 of the Constitution of Ukraine) as well as one of the key principles of tax legislation, which provides for “equality of all taxpayers before the law, prevention of any manifestations of tax discrimination.”
  2. The introduction of a tax amnesty is expedient and effective only after the elimination of the factors that caused the existing evasion of taxes and fees.
  3. It is important to prepare an effective and efficient mechanism for tax audit of citizens after the expiration of the deadline for the amnesty procedure.

Comments on the quality of the Draft Law:

  1. Since a depersonalized declaration is to be submitted, it seems unclear how the funds legalized according to this bill will be taken into account by the supervisory authorities, or how the subjects under financial monitoring will be properly audited as regards each particular individual.
  2. The bill fails to provide for a mechanism for separation of property and proprietary rights obtained as a result of offenses other than those identified by the bill. In this aspect, the application of the provisions of the bill may lead to legalization (laundering) of proceeds from crime, which is not in line with the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism and the Law of Ukraine “On Prevention and Counteraction to Legalization (Laundering) of Criminal Proceeds (…)”
  3. Draft Law No. 5153 establishes the amount and composition of assets on which taxes and fees will be considered to have been fully paid. The approach to identifying such assets is unsubstantiated. Thus, in particular, these assets include property for a total amount of no more than 400,000 UAH and an apartment with an area of up to 120 m2. It is not clear why assets worth more than 400,000 UAH should be considered illegal. Probably, the best approach will be to determine the total value of assets based on an individual’s declared taxable income.
  4. Based on an analysis of the twenty-one Opinions provided by the Main Scientific and Expert Department, one can conclude that the mechanisms for achieving the goals set in the Law are imperfect, containing a lot of inaccuracies and ambiguities, which will lead to the impossibility of applying legal norms for achieving the set goal.

Derivative bills

No. 5154

Quite remarkable is the fact that all bills in this group were submitted for consideration at the extraordinary meeting – all except No. 5154, which provides for amendments to the Budget Code according to which the one-time fee will be included in the revenues of the general fund of the State Budget of Ukraine. Perhaps the underlying reason here was the Opinion of the Main Scientific and Expert Department, in which the Department pointed to the inexpediency of making this rule part of the body of the Budget Code of Ukraine, since it will last for one year only; probably it will be better to place this norm in the “Final Provisions” section.

No. 5155

Draft Law No. 5155 provides for releasing from liability for violations of the currency legislation those individuals who have submitted their one-time (special) voluntary declaration in accordance with the provisions of the main bill.

No. 5156

The Draft Law proposes releasing from administrative and criminal liability for evasion of payment of taxes, fees and the unified social contribution of individuals who have submitted the one-time (special) voluntary declaration.

At the same time, the President proposes establishing criminal liability for illegal disclosure, provision, or access to information included in a one-time (special) voluntary declaration. Also, amendments to the Criminal Procedure Code are proposed according to which the information included in the special declaration is in fact equated to a notarial secret.

Alternative bills

At present, there are three alternative bills. Draft Law No. 5153-1, submitted by two members of the Servant of the People faction, proposes lower rates for the one-time fee: 2.5%, 3%, and 5%, compared to 2.5%, 5% and 9% proposed by the main bill.

The distinctive features of Draft Law No. 5153-2, initiated by Yulia Tymoshenko, are as follows:

  1. Establishment of a single fee rate: 5% regardless of the location of assets (the main bill provides for 5% and 9%);
  2. Mandatory placement of funds on current accounts at Oshchadbank in order to identify the declarant;
  3. Recognition that taxes and dues have been paid in full on property worth 1 million UAH (400,000 UAH in the main bill).

Draft Law No. 5153-3, initiated by an MP from the Holos faction:

  1. The proposal is exclusively for a tax/capital amnesty, without the so-called “zero declaration.” Therefore, one can say that, in general, the normative provisions of the bill are not at odds with the content of the concept of “one-time (special) voluntary declaration,” contrary to the other registered bills; in this connection, Draft Law No. 5153-3 seems to be the most appropriate one from the conceptual viewpoint.

Thus, the bill eliminates, to some extent, the risks inherent in the above bills for bona fide taxpayers as regards the possibility of their legitimately acquired – and hence taxed in previous periods, assets being legally qualified as having been acquired with violations of tax and other legislation; under the other proposed bills, it may be claimed that such assets have been acquired with violation of legislation and that taxes and dues have not been paid on the assets; also, assets acquired from incomes on which taxes and fees and all other mandatory charges have been paid – as well as such incomes themselves – may be subjected to “second-time” taxation under the other proposed bills.

  1. In the bill, attention is also partially paid to addressing the preconditions for tax evasion, but the proposed solution is not comprehensive and will not sufficiently eliminate such grounds.
  2. Moreover, the bill proposes a somewhat greater differentiation of tax rates on previously undeclared income: 2.5%; 3%; 5%; 6%; 9%, and 11.5%.

Thus, summing up, we can say that the bill from Holos presents a more comprehensive approach to addressing the issue of “tax amnesty” compared to the presidential bill, but still it needs to be revised to eliminate the preconditions for tax evasion by reforming the tax system in a way strengthening its regulatory and social functions, improving the administration of taxes and fees.

It is also necessary to ensure an effective investigation of tax evasion offenses before the introduction of a tax amnesty mechanism. None of the authors of these Draft Laws paid any attention to this aspect.