Ukraine Country Profile

Tax Administration

Individual Corruption

According to Transparency International's Global Corruption Barometer 2009, Ukrainian tax officials are perceived as being prone to corruption, with a quarter of the surveyed households reporting that they paid a bribe to tax revenue authorities in 2008. In the first half of 2007, 245 tax officers were brought in front of administrative authorities and 20 of them laid off for abusing their positions. Also, the Attorney General filed 857 lawsuits on VAT Administration malpractices, and 457 of these were won.

Business Corruption

According to the World Bank & IFC Enterprise Surveys 2008, tax administration tops the list of perceived impediments to business operations in Ukraine. Investors complain that the State Tax Administration selectively enforces tax policy and that it uses its investigative authority to advance favoured political or business interests.

According to the USAID & MSI Corruption Assessment 2006, paying taxes is considered burdensome, contradictory and complicated by companies, and legislation creates possibilities for abuses by making available a wide range of fines to be imposed for the same offence. It is also reported that in investigating tax evasion, the tax police have the right to occupy a company's office and seize documents, and that this right has been abused to obtain political and economic advantages. In some instances, reports say that tax privileges are granted in return for kickbacks to public officials.

VAT refunds are also highly problematic. According to the US Department of State 2008, exporting companies are expected to pay bribes to tax officials between 5 and 30 percent of VAT refunds in order to get refunds. In 2008, the process for obtaining a VAT refund took between 3 and 18 months for foreign companies. Furthermore, companies report a very uneven pattern of refunds, where some companies are refunded much faster than others. According to the US Department of State 2009, the government plans to introduce an electronic system to ensure that VAT refunds in the future. Meanwhile, it is reported that Ukraine's VAT regime suffers from poor management, non-transparency and corruption, while delays in refunds have become an important cost factor for many companies.

Political Corruption

The State Tax Administration oversees all taxes in Ukraine. According to Global Integrity 2009, tax laws and regulations are not always clear, are frequently changed and can be contradictory. This results in a high level of tax evasion, and a large informal economy (estimated by the World Bank as 52.2% of GDP). The regulatory and institutional framework for taxation thus remains a high risk area for corruption.

Large-scale corruption is suspected to have occurred in a VAT refund scam, which allegedly amounted to USD 1 billion in 2006. This scam involved kickbacks to tax officials in the range of 30-50% of the refunded VAT.

At the end of February 2009, Ukraine's national intelligence agency, SBU, arrested a senior tax administration official for allowing allowing some 13.7 billion cubic metres of natural gas of disputed title and held in Ukrainian reservoirs and pipelines to be marketed in Ukraine, according to a 2009 article by All Headline News.

Frequency

The World Bank & IFC: Doing Business 2010:
- A medium-sized company can expect to make 147 payments (several times the regional average) and spend 736 hours a year (more than twice the regional average) managing the administrative burden of paying taxes.

- The total tax rate as percent of profit is more than 57%.

- In connection with the above figures, Ukraine is among the worst performing countries in the world in relation to paying taxes.

Transparency International: Global Corruption Barometer 2009:
- 25% of households who had contact with tax revenue services throughout 2008 report having paid a bribe.

The World Bank & IFC: Enterprise Surveys 2008:
- 28% of the companies surveyed expected to give gifts in meetings with tax inspectors.

- 55% of the companies surveyed identified tax administration as a major constraint.

- The number of meetings with tax inspectors was 3.8 times a year on average.

EBRD & World Bank: BEEPS Ukraine 2005:
- 14% of companies state that bribery is frequent in their dealings with the tax authorities.

- On average, companies reported being inspected 4.5 times per year by tax agencies, the average duration of each of these visits being 5 hours.