How the EU helps Ukraine manage public finance in a more efficient way

In 2019, the EU Public Finance Management Support Programme for Ukraine (EU4PFM) was launched to assist Ukraine in the implementation of reforms. Recently, the Project has crossed the equator of its activities in Ukraine.

Many changes have taken place in the past two years with the EU’s support. The main ones will be presented further on.

Jurgita Domeikienė
Team Leader

First and foremost, Ukraine is currently much closer to ratifying the EU Convention on a Common Transit Procedure. This step has already been taken with the assistance of the EU.

Since March 2021, the necessary regulatory and technical framework for the implementation of an electronic transit system based on the EU common transit procedure has been in place. Ukrainian companies have the opportunity to work according to the EU rules of transit movement of goods and make use of the benefits adopted in the EU.

Among new mechanisms of support for big business is the implementation of simplified transit procedures and the EU Institute of Authorised Economic Operators (AEO).

The first document was approved by the Cabinet of Ministers of Ukraine only a year after the launch of the Programme. In July 2021, the Cabinet of Ministers has also introduced an EU-style monitoring procedure for the institution of authorized economic operators.

EU4PFM provides system support for changes. Over this time, workshops, round tables, and study visits were held for public servants and the business community, and experts from Lithuania and Poland shared their experience of changes in this area.

EU4PFM also provided expert support in the criminalization of smuggling. And we welcome the adoption in the first reading of amendments to the Criminal Code of Ukraine in July this year.

It is essential that the experience of the EU countries is heard and that Ukraine manages to find an important balance between the threshold of liability and punishment.

It is really important, because a low liability threshold may provoke an avalanche of criminal cases that would not be investigated, thus making criminal punishment for smuggling ineffective.

The efforts of the EU4PMF team in the area of taxes have been focused on improving digital services for taxpayers and enhancing the efficiency of the State Tax Service. Specifically, with the support of the Programme, the Concept of the implementation of the single integrated system of service delivery was developed, legal and normative acts on the introduction of BEPS initiatives were drafted, rules of transfer pricing were improved, the Single Tax Account and IT solutions on e-cash registers application were developed, and the Single Tax Account ranking module was designed.

To date, the Programme activities are geared towards supporting the building of an efficient and fair system of tax administration. The system’s efficiency implies the optimal ratio of the use of resources, both material and time, for paying taxes and customs duties by businesses and control by public institutions of this process on the one hand, and of the deliverables on the other. Hence, expenditures for tax administration are reasonable, controlled, and efficient for businesses and the state.

A fair system of collection of taxes and customs duties shapes a competitive environment with the same conditions applied to all businesses. In other words, it makes it impossible to gain a competitive advantage for a business that avoids paying taxes (customs duties) or minimizes them.

Moreover, under such conditions, paying taxes becomes a more profitable way for doing business than finding ways to avoid taxation.

Shaping a fair system creates favorable conditions for doing business, which in turn promotes investment and accelerates economic growth in general.

In this light, we support taxpayers’ efforts to strengthen trust in tax administration authorities and believe that up-to-date tax administration should ensure transparency, equality of taxpayers, and fair competition for businesses.

The main two areas are in the focus.

First of all, we will support measures that promote voluntary compliance with the tax legislation.

As a rule, this means a ‘win-win’ situation where both the tax administration and taxpayers will benefit from a reduction in the administrative burden. In this regard, it is very important to implement a customer-oriented approach through the introduction of high-level, primarily digital, services for taxpayers, enabling them to make tax returns and payments easily and quickly.

Another area is to help de-shadowing the economy through implementing effective safeguard and control measures.

An important element of the Programme initiatives is also the facilitation of a constructive public dialogue between government agencies, businesses, and society. Businesses should be involved in the discussion of strategic decisions, and their position should be further taken into account.

The EU will support the modernization of the Contact Centre of the State Tax Service, the improvement of software and hardware of the Single Tax Account to simplify payments to the budget, the purchase of an up-to-date document management system, as well as the development and upgrade of e-cash registers applications.

The Programme provides methodological and technical support for the uptake of electronic audits, improvements of transfer pricing audits, etc.

The next stage is the implementation of BEPS initiatives (combating the tax base erosion and withdrawal of profits from taxation). This will be done through the automatic information exchange procedures, successfully applied in more than 100 countries.

As a result, it helps increase tax revenues.

Until the end of the next year, Ukraine is expected to join the global network of automatic exchange of tax information in compliance with legal, technical and administrative conditions, according to our work plan developed jointly with our partners, the Ministry of Finance, and the State Tax Service.

Finally, a few words about some ideas on human resource management and organizational transformations.

Although we talk about them at the end of the conversation, this does not mean it is the least important part of our Programme.

It has to be mentioned that sometimes human resource management is greatly underestimated in an organization.

Yet we must not forget that the organization’s success depends on the right people and on a well-functioning personnel management system, ensuring that certain positions are staffed by people with the required skills and competencies who will bring maximum benefit to the organization.

Jurgita Domeikiene

Team Leader