Hoping for a zero declaration: will the new capital amnesty help to de-shadow incomes and fill the budget?
12 December 12:51
ANALYSIS FROM 
The Ukrainian government confirms its intention to hold a new capital amnesty, planning to offer Ukrainians to legalize not only money, as during the previous similar campaign, but also other assets. Under what conditions such an amnesty can be successful, "Komersant Ukrainian" found out
The Action Program of the Cabinet of Ministers contains an obligation to submit to the Verkhovna Rada of Ukraine draft legislative initiatives on de-shadowing of income by introducing a one-time (special) voluntary declaration by December 31 to attract private capital. Confirming such intentions in a recent interview with Forbes Ukraine, Economy Minister Oleksiy Sobolev clarified that the new campaign would last for several years.
The previous similar amnesty, the tax amnesty, started on September 1, 2021, was supposed to last for one year, but was extended for another six months, until March 1, 2023. And such an extension of opportunities, we must admit, did not dramatically improve the overall result.
Stating the completion of the voluntary asset declaration, the Chairman of the Parliamentary Financial Committee Danylo Hetmantsev said that as of March 1, 2023, 845 declarations had been submitted, the total value of the declared assets amounted to UAH 8,823.6 million, and the total amount of the declared fee was UAH 547.5 million. At the same time, the deputy drew attention to the fact that UAH 2.6 billion was declared over the past two weeks, which is almost 30%. And, apparently, this is what gave him grounds to say that “many people did not have time to take advantage of the unique opportunity.”
A new opportunity
While during the previous tax amnesty only money could be declared, the new capital amnesty will allow not only money but also other types of assets, including real estate, businesses and other resources, including foreign ones. This is how Minister of Economy Oleksiy Sobolev described one of the main features of the new attempt to legalize income in Ukraine. Other more specific parameters of the new campaign are not yet known. As well as the answer to the question: what exactly will prompt or encourage asset owners to legalize their assets.
Economist Borys Kushniruk has a hint as to how this can be facilitated.
“Is it necessary to legalize? Yes, it is. But it needs to be done as a comprehensive thing, and we need to understand the logic of why it needs to be done. There is a concept of the so-called zero declaration. Until there is this conditional zero, there is no way to control the real assets of Ukrainians, to tax them correctly and eventually make them pay taxes. It is also important that all assets held at the time of the amnesty are not taxed. Because if there is a requirement to pay some taxes on these assets (3-5 percent) in order to legalize them, it is obvious that people will not do so and will continue to hide their money,” the expert believes.
Financial analyst Andriy Shevchyshyn also points out the importance of the conditions for the capital amnesty.
“I am very positive about this, but I would like to see the design of these actions, what they are about, what capital. Because we really need to reach some kind of zero point from which to build on and grow in a normal tax sense. When you can legalize your assets. Many people inform about their assets, and accordingly, they can cover their expenses. Some people can’t tell us about their expenses. This way, the tax authorities will have better control and administration of taxes,” the expert notes.
He also identifies one of the categories of citizens for whom such legalization would be particularly interesting.
“It is very important to remember that many people in Ukraine have cryptocurrencies. They did this at a time when there was no legislation on digital currencies, and they were outside any legal framework at all. And in this regard, a zero declaration is also needed. That is, to start with something,” the expert states.
Ends and means
It is believed that President Volodymyr Zelenskyy’s team was inspired by the example of Argentina, where $116.8 billion was declared in the 2016-17 campaign and the budget was enriched by as much as $9.5 billion. And in the explanations to the law that regulated the previous Ukrainian campaign, along with stimulating the de-shadowing of income and improving tax culture, the task was to “pay a one-time fee to the budget.”
Ukrainian officials are also now talking about the importance of de-shadowing. However, when explaining the expediency of holding an amnesty now, Economy Minister Oleksiy Sobolev emphasized that “now is the right time for an amnesty, because there is a need for money to rebuild the country.” And expanding the parameters of legalization, which can cover not only money but also other assets, should help fill the budget.
However, economist Borys Kushniruk has his own explanation as to why it is now.
“For me, this story is also about giving those who have stolen the opportunity to legalize everything now, because the government will change, and God knows what decisions will be made later. Therefore, it is necessary to legalize it now, before the change of power. And another thing. I believe that civil servants or members of their families, if legalization takes place, should be given the right to legalize, just like everyone else. But then there should be a practice that these people should simply be banned from public service. I’m sorry, but you shouldn’t be allowed to come to power at gunpoint, because there is distrust in you,” the expert emphasizes.
By the way, economist Borys Kushniruk believes that it is not the right time to hold a capital amnesty during the war.
“If you hold this amnesty of capital now and according to the same model as before, will the amnesty take place? No, it will not. In fact, you will not be able to launch the right model. But you will discredit the very idea, the very philosophy of amnesty. And then a new government will come in, and it will want to do everything right. Who will trust it, given that the two previous cases were unsuccessful in terms of the proposed model,” the expert says.
Although, if we recall the experience of Argentina, before the rather successful tax amnesty of 2016-17, there were two not so successful campaigns in 2008 and 2013. And while the third amnesty enriched the budget by $9.5 billion, the previous ones enriched it by only $910 million. However, there is one significant clarification: in 2015, Argentina changed its president.
Trust matters
Argentina’s experience shows a direct link between the emergence of a new government and the success of a tax amnesty. And the issue is not only in new approaches and methods of campaigning. It is also about the level of trust and popularity that the new government can boast of at the beginning of its term.
The current Ukrainian government recognizes that the problem with the previous amnesty was the lack of trust. But whether there are prerequisites for restoring this trust is the question.
The opinion of Ivan Kompan, founder of First Kyiv Investment Club.
“What is amnesty? When do people disclose all information about themselves to someone? Only when they trust someone. Therefore, first we need to build something that we can really trust. And when everyone sees what’s happening with the government, what corruption there is, I don’t think anyone there will be very eager to disclose anything. And the results of previous amnesties don’t help: there were some results, but they were so microscopic. But the main thing is trust. And the trust of an ordinary citizen in the government means that this person has at least some opportunity to protect himself. This means, among other things, that they can go to court and have at least some chance. I don’t think anyone has much of a chance,” the expert notes.
By the way, the International Monetary Fund is quite skeptical about the idea of tax amnesties. In March 2021, when Ukraine was preparing to hold the last tax amnesty, the then head of the IMF office in Ukraine, Jost Ljungman, explained the Fund’s position in an interview with Interfax-Ukraine:
“Tax amnesties often hurt tax collection in the long run, as they demotivate citizens from paying taxes by creating hope for another amnesty in the future.”
The government has already tried to limit such hopes. Economy Minister Oleksiy Sobolev recently announced a gradual increase in the exchange of information with foreign tax authorities on foreign accounts and real estate of Ukrainians. Perhaps hinting once again that it is better to declare everything now than to explain and answer later.
Author: Sergiy Vasilevich
