“New Tax service is against filling in the state budget at any cost” - Serhii Verlanov during an interview with the “Minfin”
At present, the reformation of the State Fiscal Service is actively ongoing. Apparatus that has been working as a single structure for several years has recently been re-divided into two bodies – the Customs and Tax Services. The Tax service is headed by the former Deputy Minister of Finance Serhhii Verlanov.
Sector of human recourses of the new structure is still forming.
New Tax service has grand plans. They promised to abandon forceful methods of “kicking out” taxes, reduce the number of litigation with the taxpayers and do not torture business with audits. In addition, the Tax service has grand upcoming project – the counteraction against the “shadow” and the total fiscalisation of individuals-entrepreneurs.
Laws on the RCO and cashback that were adopted by deputies in September 2019 made a lot of noise. Business fears total repression, fines and costs for cash registers.
The “Minfin” talked with the country’s top tax official about the STS reformation, filling in the state budget and how the RCO implementation will actually take place for individuals-entrepreneurs.
Please tell us how the STS reformation is going?
We have successfully launched the new State Tax Service. Separation from the State Fiscal Service was absolutely “painless” for the taxpayers. There were no malfunctions, and it is not important. The VAT reimbursement has not stopped, as well as registration of the tax invoices.
On the 28th of August 2019, the documents were registered in the SFS electronic cabinet, and on the 29th – already in the STS electronic cabinet. Imagine the tremendous internal work that has been done in order to restart such huge structure without disruption. All units worked as clearly as a clock.
We paid salaries to employees on time, despite the fact that many procedural issues had to be resolved, including changes of accounts. During such turning points, all worked hard for two hundred percent. But the main thing is that from the first days of the STS activity, it began to fulfill its budgetary functions fully.
How successful? How the budget fulfillment plans are ongoing now?
According to the results of past 10 months, the consolidated budget revenues have increased almost by 20%. This is compared to last year’s figures for the same period. Although, the tax base has remained virtually unchanged. As of the General Fund, the amount of 359.1 billion UAH was paid taking into account that the plan is 360.7 billion UAH. But firstly, we consider categories of the quarter. This means that we understand and fully control the dynamics of revenues.
Secondly, the new Tax service is against filling in the state budget at any cost. That is why I have set a clear task – to stop “pulling out” of taxes, stop compulsion to overpay the income tax and other such shameful practices. Because it’s one thing to cut the branch you’re sitting on: today, you’ve pulled everything out of business and even more. And tomorrow, due to a decrease in working capital and deterioration of business conditions the enterprises will simply reduce their budgetary contributions.
So how exactly you’re going to fulfil the plan?
We have changed our approaches to the tax administration. We have left the strong power methods of filling in the state budget, it’s in the past. Instead, we have focused on analytical work. That is, we have focused on risky operations and the taxpayers. For the first time in many years, we have been consistently counteracting the tax schemes. Budget revenue statistics shows that we are doing it. For example, the VAT revenues have increased by 20.3% and supplies (tax base) increased only by 5.3% over August-October 2019. I am convinced that the counteraction against the “shadow” is the only right way and opportunity to increase the budget revenues. Increasing the level of analytical work and shifting the focus of attention to the tax minimizers is also a great positive for honest taxpayers.
Does it mean that the Tax service will check them less?
Exactly. Starting from June 2019, the number of unscheduled audits has decreased from 6.500 to 4.600 compared to the same period last year and from 2.300 to 1.900 of scheduled audits. Now maximum attention is paid to risky operations and maximum freedom for those who pay their taxes fairly. This is our current principle of work. The STS already took it into account forming the schedule of scheduled inspections for the next year. Imagine how many taxpayer’s hours and nerves will be saved.
What else will you change in the near future?
Originally, the STS was considered as a service organization. Why this approach was chosen? Many years I spent working in the law practice, that is, the other side of the barricades. That’s why I clearly understand what should be done for voluntarily payment of taxes. This is precisely the main purpose of all our reforms. To do this, we need to remove the same barricades, change attitude that the taxpayers are not a target, not a whipping boy, these are our customers. And if we want our clients to pay their taxes voluntarily, we have to put quality and high level of service at the forefront.
Is there existing vision how to accomplish this task?
It is not necessary to invent a “bicycle”. We need to develop electronic services. To put it simply, the taxpayer should generally forget the way to the Tax service. We should make sure that all services, any help and any question our client can get online. And it should be as simple as possible.
It is logical, when all services to the taxpayer will be provided through the electronic cabinet. Currently, the taxpayer’s electronic office serves 1.8 million users. These are individuals-entrepreneurs, companies and citizens. That is, we have somewhere to grow and there is someone to develop this service for. So now we are working to reboot this service and make it more user-friendly.
So far, work with the taxpayers has not completely gone in online mode. And many still communicate directly with the tax inspectors. What about the cadre personnel of the STS, is it formed?
The State Tax Service is one of the biggest central executive bodies with the cadre personnel about 25.000. At present, we have completed the active phase of transferring the SFS personnel to the STS. For instance, the maximum number of personnel in the central apparatus is 1248. The amount of 75% has been transferred to the new Tax service. As for regions, the amount of 92% of personnel or approximately 22 thousand has been transferred. Fate of others who remain in the Fiscal service will be resolved in the near future.
You speak about the reforms, about formation of the new Tax service. But the new face of the Tax service is created by people. Where will you look for new cadre personnel?
You’re absolutely right. It is impossible to conduct such large-scale reforms that we have outlined without the “personnel reboot”. I’m not saying that we should fire everyone and hire new ones. But, as is said, we have to add “fresh” blood. First of all, it concerns management. We have transferred all heads of main departments to the new Tax service with the prefix “acting”. Next, there will be competitions where we will choose people who can prove their ability to think and work in the new way, as well as those who are able to form modern team of specialists.
The first competition for 82 vacant positions in the Large Taxpayers Office has already been announced. During this competition we will “roll back” all the procedures and will conduct competitions in the regions. In parallel, we will recruit young ambitious graduates. Believe me, the tax practice is a very good start for further career development. But we are also interested in keeping the best personnel with us.
How will you keep them?
Obviously, no one has canceled financial motivation. And I am grateful to the government and deputies for their support for our initiative, as well as to the fact that they provided opportunity to raise salaries to the tax employees in the budget for the next year. Now, if people working in the regions receive an average salary of 12.700 UAH, then next year the average salary will be 16.700 UAH. As of the central apparatus, now the average salary is 21.500 UAH and from next year it will be 31.500 UAH. This is the amount of the planned average salary, taking into account the salary, allowances and additional payments, based on the approved amount of expenditures for the labor of the state budget law for the respective year.
Of course, this is not yet the level that I would like to provide for our employees. But the increase is significant. Also the psychological factor still works – people see care, positive dynamic, so that it is a good incentive not only to stay, but to change within the changes of the Tax.
It is noticeable that not only approaches to administration are changed. The Verkhovna Rada adopted the Laws that extend the mandatory use of cash registers for individuals-entrepreneurs and introduce a cashback mechanism. Why you decided to start specific tax reforms with individuals-entrepreneurs?
I cannot agree with you in this. For the first time, the tax policy in our country is based on the principles of tax equality. This policy is consistently implemented by all branches of government. Tax minimization schemes used by large businesses have been consistently liquidated on the legislative level. President has already signed a number of international treaties on avoiding double taxation, including countries traditionally used for tax planning – Cyprus and Switzerland. That is, there were created special conditions under which the use of traditional jurisdictions on minimization becomes simply disadvantageous. Also, for the first reading there are prepared Bills of Laws intended to combat the erosion of the tax base and the withdrawal of capital to the offshore. This concerns the implementation of the BEPS plan to the national legislation. In such way the government gives a clear message for big business – taxes must be paid to the budget in full amount.
Let’s get back to new rules on the RCO. Now there are a lot of rumors and speculations around this. Many talk about the destruction of individuals-entrepreneurs by increasing inspections and tightening penalties for violations of cash discipline ...
This is the case that all this is nothing more than rumors. And what will actually happen? Firstly, entrepreneurs will have enough time to prepare for changes. From the 1st of October 2019, it will be mandatory to use the RCO only for specific groups – jewelry dealers, auto spare parts, medicines, second-hand (but only in shops!), as well as for catering, travel agencies, hotels, sales of goods and services via the Internet. Single tax payers of Group II - IV should start working with the RCO from the 1st of January 2021. Herewith, to my mind the Law prescribes very important revolutionary things. For the first time, the legislation allowed to abandon these old RCO boxes and move to modern software registrars of calculated operations that can be installed in any gadget.
Yes, but the opponents say that not all entrepreneurs have gadgets. So, they still have to buy traditional RCO and furtherly pay for their service ...
Friends, well, let’s be down to earth. Have you seen an entrepreneur who doesn’t have a computer, tablet or mobile phone? Now we are not talking about the smallest representatives of the simplified Group III, because for them the RCO is not needed at all. We are talking about micro-business with annual turnover up to 5 million UAH. As a reminder, from the 1st of January 2021, the Law raised the annual turnover bar for the Group II from 1.5 million to 2.5 million UAH.
Another important innovation that is explicitly written in the Law is that the STS is obliged to provide a free download and maintenance software program. The end. Everything else about some paid programs from the Tax service, about “their” developers and about the subscription fee for service – is outright lies.
When will the free of charge program from the STS be available?
Opportunity to test this free of charge program from the STS will be available to everyone from the 1st of January 2020. Entrepreneurs can choose any other convenient program for them from other developers, we do not limit anyone. But at the same time there will be our free of charge option. Trust me, we have sufficient resources and capabilities to meet this requirement.
And the last. There is a Presidential Decree where the government is instructed to develop and submit to parliament the Bill of Law on a two-year moratorium on audits of compliance with the rules of the RCO application. I am sure that the government and deputies will do everything to freeze such audits for two years on the legislative level.
Yes, but even with the use of the software RCO, the expenditures of small businesses will increase. At least for keeping accounting records of goods.
New RCO rules do not violate the “status quo”. This means that there are no newly introduced requirement for the taxpayers of simplified system in respect of any mandatory form of accounting for goods except for certain Groups of sellers of household appliances that are subject to warranty repair, medicines, medical products and jewelry. That is, for most unions, the new RCO laws do not prescribe penalties for such cases.
Ok, but how to program the RCO?
In any case, the entrepreneur must keep accounting of sold goods “for himself” in order to determine the results of his own activity. But the software RCO will be much easier to integrate with any system of such “internal accounting”, even if Excel is used for this purpose. By the way, penalties for the lack of product programming in the check do not change for “regular” goods. Today it is 85 UAH one-time for all detected cases of violations.
There will be no additional reporting either. In the software RCO, the Z-report will be created automatically, without the risk of sanctions for the taxpayer.
And finally, using traditional RCO, you will no longer need to keep a ledger for the registrar of calculated operations. It is not provided for the software.
How do you think, currently the “cashback” mechanism has become the worst horror for entrepreneurs? Are there any “fuses” that will prevent consumers from abusing their rights or using this system in an unfair competition?
You would probably be surprised if I will say that, on the contrary the new rules make an entrepreneur more protected from such risks. Now the Tax service is obliged to respond to buyers’ written applications and to check the “non-fiscal” checks. What does it mean? For example, you came to the store, made a purchase and received a check. But this check was only for you and the seller, and no tax information was sent to you. This is a non-fiscal check. How this is done – is another question. But the reason why this is done is quite clear – to hide the real turnovers.
So, as of today the buyer can also complain if he/she received such a non-fiscal check. But now there is no electronic system in which such applications are recorded. Therefore, there is therefore room for manipulation. It is sometimes much more difficult to identify such complainant and evaluate the merits of his / her complaint to the supervisory authorities.
So, what will be changed?
The “cashback” mechanism will be applied from October 2020. Then, any applicant who informs about receipt of a non-fiscal check should identify himself / herself through his / her own taxpayer’s electronic office. Such buyer actually agrees that the Tax service will check not only the lawfulness of the seller’s actions against him, but, first and foremost, evaluate the authenticity of documents attached to the complaint. This minimizes the risk of possible manipulation with documents or deliberate misrepresentation. Any compensation is possible only after collection of sanctions. The cost of goods that can be challenged will start from 850 UAH in order to prevent attempts to “control” the entrepreneurs. And, by the way, use of the software PPOs will be another safeguard against possible manipulation of the cashback.
Explain why?
Within the framework of application of the software RCO, fiscalization of check will occur on the STS server. Therefore, the check will be not just a consideration of the fact that the check was submitted by the seller, but the proof of its non-registration or distortion. When the discrepancies will be identified, the tax authorities must prove that the seller has indeed committed the violation. This will require the analysis of additional unique information. In particular, the analysis of previous and subsequent checks issued by the same seller on the same day, correspondence of their fiscal numbers, imposition of a digital signature upon their registration. As follows, it will simply not be possible to apply a fine upon receipt of a complaint!
But if, after all, the entrepreneur’s guilt is proven, what sanctions will be imposed?
As for the amount of fines, at present for the failure to issue check or incomplete information in it, the violator pays 1 UAH. And only if such violation is committed for the second time – the amount of fine is 100% of the cost of sold goods (services).
What new Laws have changed? – approach to imposition of fines. It got tougher. But in this, entrepreneurs also got the opportunity to adapt. The increase will occur in two stages: first, the first violation will be charged 10% of the value of sold goods (services), and then, from October 2020, from moment of the cashback mechanism – this fine will be increased to 100% for the first violation. That is the same size as in the second case now. Why do I think this is correct?
Now some of the big companies sell goods through individuals-entrepreneurs. And such individuals-entrepreneurs can violate the cash discipline without punishment. Because who is scared of a fine in the amount of 1 UAH. So the scheme is the following: the one was caught for violation, then payed 1 UAH and “froze”. Then the product is sold through another individual-entrepreneur. And everything repeats again. When the new rules on fines will become valid, everything will change: committed violation – answer financially. But, of course, the violation must be properly documented. And each taxpayer has the right to appeal against decisions of the tax authority under the procedures of the Tax Code.
Tax reform is also awaiting us in the next year. The government has already announced its conduction. What are the main steps that will be taken? What will change for the average citizens?
There is a strategic vision – people need to have more money. This means that the system of the personal income taxation will be revised. Both size of the tax and other elements of this tax will be discussed. From the big income there will be more tax accrual. And this is a fair approach to taxation. Administration of the environmental tax will also be reviewed. And this is a complex question that goes beyond the Tax Code. After all, the environmental taxation has several equally important aspects – not only fiscal, but also economic and social. For example, one of the conditions is that money should go towards improving infrastructure and solving environmental problems where such problems exist.
