How tax reform will help to fight corruption

How tax reform will help to fight corruption
December 08, 2015.

Kyiv, December 8, 2015. There is a close interdependence of taxes and corruption, explained Minister of Finances of Ukraine Natalia Yaresko at a discussion at Ukraine Crisis Media Center in framework of project “Ukraine Reforms Communication Taskforce”.

According to Natalia Yaresko, by corruption should be meant not only bribery in its classical manifestation, but also all funds illegally bypassing the state budget. “The Ministry of Finances feels responsibility for reducing corruption risks,” explained the Minister.

Among the transparency increasing tools introduced by the government this year are a new policy of transfer pricing, VAT electronic administration, and public procurement via Prozorro electronic system.

Natalia Yaresko explained: “Before introducing this electronic VAT administration system, there were a lot of fake VAT invoices, and thus VAT was refunded but not collected in the state budget. Some experts suggest that such refunding amounted to 20 billion hryvnias per year. The electronic VAT administration reduces subjectivity of this process, and therefore saves money for the budget.”

At the same time transfer pricing policy adopted this year reduces the possibility of withdrawal of profits to offshore zones abroad. Thus, large taxpayers have no choice but to pay taxes to the state budget.

In his turn, Daniel Kaufmann, President and CEO of the National Resource Governance Institute, and the former head of the World Bank in Ukraine, emphasized that the tax reform and fighting corruption are the integral parts of improving public finance management.

According to Daniel Kaufmann, tax reform should include such items as simplification of the Tax code; a change in approach to taxation of the extractive industry (transition from royalty system to income taxation). Finally, Kaufmann emphasized the need for complete elimination of opportunities for illegal tax evasion.

Robert Conrad, advisor to Ukraine’s Minister of Finances also offered his vision of the fight against corruption in the tax area. According to him, the demand for corruption must be systematically reduced. This will be possible with the introduction of a quick and transparent process of appealing against decisions of tax officers.

Another aspect of this issue is the maximum elimination of personal contact between the taxpayer and the fiscal authorities. It is very difficult to be corrupt if the taxpayer and the tax inspector are at a distance of 600 miles from each other,” explained Mr. Conrad.

Finally, the expert stressed that the ambiguity of tax legislation creates a space for discussion, and hence for illegal agreements. Instead, transparent and clear rules for taxpayers contribute significantly to eliminating corruption risks.

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