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Утім, ми залишаємо відкритими наші банківські реквізити для тих, хто вважатиме за можливе і далі демонструвати довіру нашій команді своїми пожертвами.

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Караємо зашкварених мажоритарників

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Допомагаємо банкам дізнатися правду про клієнтів-чиновників.

Foreign partners condition Ukraine to fight corruption. We are monitoring how Ukraine implements these obligations.

Вивчаємо корупцію та вчимо з нею боротися.

Допомагаємо повернути украдені корупціонерами гроші назад в Україну.

Contraband Ukraine: western border is full of fake tourists and “mules” – Investigation

Tens of billion UAH of shadow volumes annually, protection in law enforcement authorities and mutual cover-up. There is an organized community in Western Ukraine that flourishes supplying contraband goods all over the country on an industrial scale: from electronics and shoes to auto parts.

Western border of Ukraine is de-facto controlled by contrabandists.

Taking this into account, such initiatives of Ukrainian traders of electronics as introduction of taxes on parcels worth more than 22 Euros, seizure of foreign purchases of Ukrainians, price dictate of producers of hardware and sales of electronics upon fiscal receipts look nothing more than a fight with windmills.  

For the most residents of western regions contraband became the only source of income and a life philosophy, for customs officers – a precondition for illegal enrichment, and for businessmen – a business model.

500 EUR day limit

“During January-July 2017 within the framework of an experiment on transferring 50% from overfulfilment of customs fees for road reconstruction the State Fiscal Service provided for 8,11 billion UAH,” — tells a.i. Head of the Agency Myroslav Prodan. He controls tax and customs services of the country.

These 8,11 billion UAH, however, is nothing compared to tens of billions that do not go to the country’s budget because of ineffective and clearly corrupt activity of certain leaders of regional customs offices of the State Fiscal Service and certain customs units of the State Fiscal Service.

For example, it is only from the Ukrainian-Polish border that in 2017 the budget will not receive nearly 9 billion UAH of customs duties. The reason – State Fiscal Service continues to close eyes on really a massive contraband.

One of the key schemes of “shadow” imports functions under the cover of provisions of the Customs Code. This provision allows to import goods to Ukraine by land or sea once a day without payment of duties and VAT worth up to 500 euros.  

This provision is applied to “goods that are being transferred (sent) through customs border of Ukraine by citizens of Ukraine for their personal, family or other needs not connected with commercial activity”.

However, in reality the nature of a daily limit in 500 EUR has long become exclusively commercial or, simply put, it’s been used for contraband. It was only for six months of 2017 and only from Poland to Ukraine that “within the 500 EUR limit” imported were goods for nearly 22,5 billion UAH. This amount can easily be counted.

A journalist of “1+1 media” Evgeniy Plynskiy in April of 2017 conducted a detailed investigation of the scheme of “under 500 EUR” contraband. He addressed the Ministry of Finance of Poland with an official request. He asked them to provide information on the quantity of the so called Tax Free Forms upon which goods were imported to Ukraine from Poland.  

A Tax Free Form is an important element in the contraband scheme. Contrabandists submit the form to officers of the State Fiscal Service at the border as a proof that goods are imported for personal use. Officers of the State Fiscal Service accept such a “proof” but not for free. For each of the Tax Free Form a real owner of the contraband good pays representatives of the customs unit 20 UAH.

In its response Ministry of Finance of Poland wrote that for the first half of 2017 they have 1 438 963 Tax Free Forms registered at the Polish-Ukrainian border.

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“Taking into account that everyone takes goods for up to 500 EUR, one can count that for half a year goods for nearly 750 million EUR were imported under this scheme to Ukraine only from Poland. It’s almost 1,5 billion EUR a year”, – Plynskiy says.

Clothes, shoes, electronics, computers – all this, judging from the answer of Ministry of Finance of Poland, on industrial scale without payment of any duties under silent consent of the State Fiscal Service gets on the territory of Ukraine.

Fiscal officers are not worried about the fact that the same people who live in the country with average income in 236 EUR, each day right in front of their eyes transfer goods for 500 EUR. This happens every month, year after year.

Contrabandists create zero value for the country, but they process billions a year. It’s better for millions of Ukrainians to buy contraband goods because they are 30-50% cheaper than those officially imported.

Profitability 53%

Business of contrabandists is fantastically profitable. They not only don’t pay 20% of VAT, 10% of customs duty, they even receive monetary compensation. Poland pays them 23% from the price of the good. This is being done within the system of VAT reimbursement that is called Tax Free.

VAT is reimbursed for purchases made by foreign citizens when leaving the country in which they were bought. The system functions in nearly 50 countries of the world, particularly in Poland, Hungary, Slovakia.

Thus, if one officially imports from Poland, for example, a TV worth 500 EUR for commercial purposes, its price in Ukraine will be not less than 650 EUR (500 EUR + 20% VAT + 10% Custom Duty). If this TV worth 500 EUR is “imported” under the acting scheme, then in Ukraine its price will be 385 EUR. The difference is 265 EUR.

Difference in prices for contraband and legal electronics can be seen on the web resource for price comparison. As an example – a TV Samsung UE49K5100.

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Every day thousands of residents of border areas go to Poland, Hungary, Slovakia. At the warehouses located near the border they get items of goods worth under 500 EUR and go back to the Ukrainian border.

Kilometers long lines of cars at the Ukrainian border are not tens of thousands of tourists from countries of Western Europe that hurry to spend their vacations in Ukraine. It’s “mules” with Ukrainian passports – they bring contraband. Each day these people spend 12 hours in lines to exit and enter Ukraine.

In order not to go “empty” to Europe, they also transfer contraband cigarettes and vodka there. On the way back “mules” bring to Ukrainian warehouses located near the border clothes, shoes, electronics and computers.

From there goods are being distributed all over the country. Then contraband goods are sold through plenty of Online shops where the final seller is a sole proprietor on a fixed tax rate.

Budget looses 25-70 billion UAH

Official importers of electronics and shoes anonymously confirmed to EP that the described scheme does exist. They emphasize the social danger of processes happening on the Western customs border.

First of all, competition between legal importers, that pay VAT and duties, and unscrupulous importers is distorted. This encourages the transition of bona fide importers into the shade.

Secondly, the state budget annually receives 25-70 billion UAH less.

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Foreign producer gets advantage at the expense of domestic producer, which is under the pressure of 20% of VAT. It does not make sense for foreign investors to invest funds for development of production in the country where ready-made goods can be imported without taxes.

Parasitic layer of citizens is being formed at the border districts. These citizens only transfer goods through the border and do not create any added value for the country.

One can appraise “volumes of “black” imports by comparing them to volumes of official imports and market volumes measured by authoritative analytical companies of GfK and IDC. In different groups of goods share of “black” import amounts to 30-40%”, – says the market participant.

State Fiscal Service disclaims responsibility  

EP addressed the State Fiscal Service with a request. Editorial asked to inform of the number of Tax Free Forms, which State Fiscal Service registered for the first six months of 2017 on the Polish-Ukrainian border.

Among other questions were – how many people were detected by the service transferring commercial goods under the guise of personal goods, how many sole proprietors and legal entities were detected by the service trading goods imported to Ukraine for commercial purposes under the guise of personal goods.

Press-service of the State Fiscal Service ignored the questions of the editorial. Instead of answering to the given questions fiscal service informed that, according to its data, there are three most common ways to illegally transfer goods through customs border of Ukraine. The Tax Free Scheme is not one of them.

  1. Transfer of restricted or prohibited goods through zones of simplified customs control, article 471 of the Customs Code
  2. Non-declaration, meaning failure to provide accurate information on the availability, name and quantity of goods in accordance with the established form, article 472 of the Customs Code
  3. Movement of goods with concealment from customs control, article 483 of the Customs Code, including the physical concealment of goods in caches and storage facilities.

According to the State Fiscal Service, Volyn, Lviv and Transcarpathian customs offices for the first half of the year detected 509 violations according to article 471 of the Customs Code for the amount of nearly 13 million UAH, 339 violations according to the article 472 of the Customs Code for the amount of more than 10 million UAH and 252 violations according to the article 483 of the Customs Code for the amount of nearly 42 million UAH.

With regard to splitting of commercial lots and tax free imports within a daily limit in 500 EUR the State Fiscal Service wrote that “customs offices in the Western region are instructed on the necessity to conduct comprehensive measures to strengthen control over citizens transferring goods to Ukraine having clear characteristics of lots splitting”.

Meanwhile, the leadership of customs offices in the Western region knows very well about this scheme. However, the main tax authority of the country cannot combat it and de-facto disclaims responsibility for this. On his official Facebook page, a representative of the State Fiscal Service in Volyn region writes as follows.

“Each natural person during 24 hours has the right to import goods to Ukraine, except those subject to excise, for the general actual amount of not more than 500 EUR, with general weight of 50 kilos. Information about actual price of imported goods can be found in cashier’s receipts or sales invoices”.

However, there is a common practice when passengers of one mini van transfer the same type of goods in great amounts. In order to prove that goods are not being imported for commercial purpose, citizens supplement receipts with Tax Free Forms according to which the owner of goods can be identified.

Thus, citizens prove with documents that goods really belong to passengers of the mini van. In this case customs officers do not have grounds to prohibit transfer of goods onto the territory of Ukraine”.

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In other words, the state agency which was entrusted by the Cabinet of Ministers to exercise control over the observance of tax and customs legislation, to which the law gave the right to conduct operative investigative measures cannot detect a massive scheme of evasion from paying VAT and customs duties.

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Luxurious life of customs officers

“Local authorities are involved in providing for these schemes – existence of warehouses, transfer of cargos. All bordering regions and all cities are part of these schemes. Everybody knows where these warehouses are located, who the transporters, handlers and reloaders are, and who gets what out of it”, – says the journalist of “1+1 media”.  

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How is it then possible that the leadership of customs office of the State Fiscal Service knows about the scheme but does not do anything and says that everything is according to the law? Possibly, the answer to this question lies in the declarations of heads and deputy heads of customs units of Volyn, Lviv and Transcarpathian customs offices of the State Fiscal Service.

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These officials receive 5-10 thousand UAH of monthly salary but some of them declare expensive cars, tens of thousands of dollars and hundreds of thousands of UAH in cash savings, apartments, houses, land plots and almost millionth annual incomes from entrepreneurial activity of their wives.

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An even more luxurious life has the leadership of regional customs offices who have heads of customs units in their subordination. Leonid Negrych, the Deputy head of Volyn Customs Office, Head of the unit of customs violations is particularly noteworthy. Receiving a 5 thousand UAH salary, in September 2016 he bought a 2013 Range Rover Sport for 1,8 million UAH.  

Last names and declaration of officials responsible for observance of customs legislation in Volyn, Lviv and Transcarpathian regions.

Leadership of the State Fiscal Service of Ukraine is appointed by the Prime-Minister Groysman together with the Minister of Finance Alexander Danyliuk. It is them who bare political responsibility for budget losses from realization of schemes with Tax Free and for possible illegal enrichment of certain officials of the State Fiscal Service.

The informational vacuum from regional prosecutor’s office and Security Service of Ukraine in Volyn, Lviv and Transcarpathian regions regarding combating corruption and illegal enrichment in the State Fiscal Service is what surprises.

During preparation of this article the Prosecutor General’s Office, National Anti-Corruption Bureau, Security Service of Ukraine did not provide answers to requests of EP regarding the number of active criminal cases against customs officers of the State Fiscal Service of Volyn, Lviv and Transcarpathian regions.  

What to do and what’s next

The parliament has the draft law №6755 on amendments to the Customs Code.

Instead of a daily limit it introduces a monthly limit of 500 EUR on transfer of goods by land and sea and 150 EUR – on transmission of goods. This draft law is supposed to be adopted on the first parliamentary day after vacation.

It is absolutely clear that Customs Service, as well as the State Fiscal Service in general, cannot be functioning further under the current organizational status.

Until instead of customs and fiscal services new state structures with new leadership, personnel and working principles are created, having their activity based on transparent and powerful electronic and informational systems, the state budget will continue loosing up to 200 billion UAH a year.

And any amendments to the Customs Code will help.

By Vsevolod Nekrasov, Ekonomichna Pravda