​The launch of the risk analysis system for VAT refund hits those who made their business with manipulations, O. Danyliuk says


On October 26, Minister of Finance Oleksandr Danyliuk met journalists at a press conference to discuss the creation of the Financial Investigation Service, automated VAT refund and VAT-related manipulations.

Oleksandr Danyliuk stressed the necessity to speed up the creation of the Financial Investigation Service.

He reminded that back in March this year the Cabinet of Ministers approved the draft law on the Financial Investigation Service which had been prepared by the Ministry of Finance. This draft law was elaborated by the Ministry of Finance in a transparent and open way cooperating closely with other ministries, business, experts and international partners. It must be noted that the draft law was even agreed with the law enforcement authorities.

According to the Minister of Finance, he is ready to present the Government’s draft law at the meeting of the National Reform Council. “As I told earlier, the preparation of another draft law by the Parliament’s committee for tax policy would definitely result in delays and could put the crucial elements of the new Service at risk. So far, neither myself, nor my colleagues have seen this draft law. Two days ago it was announced that we will see the concept of this draft law soon, just like, hopefully, the draft law itself. It is important that this draft law is examined by the Ministry of Finance, other ministries, experts and business”, O. Danyliuk said. At the same time, he stressed that it’s not the author of the draft law, but its content and quality which must be paid attention to. “It’s not about who the author is, though we have invested a lot of time to prepare it, but about the content of the draft law, trust to the law preparation process and about the precious time”, the Minister said.

According to the Minister of Finance, the law on the Financial Investigation Service shall contain the following key elements, no matter whose draft law will be finally adopted:

1. A clear mechanism must be established for cooperation related to the set-up of state policy. Hence, the Financial Investigation Service shall be coordinated by the body which is responsible for the set-up of state policy in the area of responsibility of the Financial Investigation Service and has the required institutional capacity.

2. It shall be a full-scale law enforcement body having all right required for the pre-trial investigation as per the Criminal Process Code of Ukraine.

3. The Financial Investigation Service must be entitled to carry out investigation and detective activities on its own. Otherwise, it will be impossible to ensure proper pre-trial investigations.

4. The Financial Investigation Service must be compact. With the effective mechanism for personnel selection, it shall have not more than 3.5 thousand employees.

5. The Financial Investigation Service shall not be overloaded with minor crimes and shall not be busy with administrative proceedings.

6. The employees of the Financial Investigation Service shall be properly remunerated.

7. The powers of the Financial Investigation Service shall not overlap with those of other law enforcement bodies.

8. The Financial Investigation Service must retain functional independence in its law enforcement activities. Any political pressure on it is unacceptable. That is why it is our task to create a body which will be impervious to any political influence and be acting in strict accordance to the law.

9. A crucial issue is the contest-based selection of the personnel for the Financial Investigation Service. The selection process must be trusted, it must be designed as transparent as possible. It is important that most employees of the Financial Investigation Service shall not have working experience in the law enforcement bodies.

To make it possible, external observers, international partners, the public should be involved in the selection process. Psychological tests and a polygraph test must be mandatory for all candidates.“Breaking this logic or excluding any of the above points would make the Financial Investigation Service either incapable and ineffective or too powerful and oppressive. And this is something which we must prevent in any case”, the Minister said.

Another important issue raised at the press conference referred to VAT manipulations whose number drastically increased in October, especially in Kyiv.

“One of the key achievements in tackling corruption this year is the launch of a transparent register for VAT refund. It removes almost 50% of corruption issues at the State Fiscal Service. The Ministry of Finance, along with the State Fiscal Service and the support of the President and the Prime Minister, made huge efforts to solve the issues which nobody has approached for years – including systemic problems with the VAT administration. Now, business receives VAT refund on time and in full.

But there is another side of it. It wasn’t only business which was affected by the untransparent VAT administration. The state and the state budget, and hence each of us, also suffered from the VAT manipulations meant to embezzle public funds”, the Minister said. That is why we developed and launched a mechanism to protect the interests of the state and the citizens against this tax fraud – this is an automated VAT risk management system. The new VAT refund mechanism has been in operation since April, more than 95% of all VAT refund applications from companies are processed automatically. The risk management system has been in operation since July and has already proven its effectiveness. Immediately after its launch, the volume of the fake tax credit went down tenfold. The suspension of tax bills also demonstrates positive dynamics. In the last 15 days, only 0.2% of all submitted tax bills have been suspended, and there has been not a single tax bill for which the 5-day term for the check of the application was not met.

О. Danyliuk stressed that the launch of the risk management system hits the interests of those who built up their business on manipulations and that many parties now are keen to halt the reform and to get corruption back.“One of the attempts to impede the reform is draft law No. 7115 which in fact makes VAT administration corrupt again, since it entitles the heads of the local tax administrations to block tax bills at their own discretion and without any rules. They want to do everything at their own discretion and in a manual mode. And everyone is well aware that those losing billions because of the new system will be trying hard to fight against it”, the Minister added.

Promptly after the registration of draft law No. 7115, a surge in the accumulation of fake tax credit was noticed increasing more than twofold this month. “In fact, we now observe coordinated activities aiming to undermine the state economic security, to disrupt the state budget and the system which fights against corruption. It is important to note that two thirds of these fake VAT refund applications have been filed in Kyiv. It means that we must seriously question the performance of the tax authorities in Kyiv”, O. Danyliuk said.

The Ministry of Finance and the State Fiscal Service have already developed amendments to the VAT risk management system meant to stop this trend. Also, the Minister of Finance and the interim head of the State Fiscal Service Myroslav Prodan has attended a meeting today to discuss ways to address this problem.

Based on the conclusions of the meeting on the embezzlement of the state budget funds through VAT refund manipulations, the Minister of Finance has given the following orders:

• Measures shall be taken to return funds to the state budget, entities involved in tax manipulations shall be thoroughly examined:

• All persons found guilty shall be made liable;

• Taking into account the volume of fake tax credit filed in Kyiv, an investigation shall be started. For the period of the investigation, the management of the tax authority in Kyiv and other relevant persons shall be suspended from duty;

• To prevent corruption and to increase the effectiveness of the State Fiscal Service, steps shall be taken to ensure the rotation of the heads of the oblast and Kyiv offices of the State Fiscal Service.

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