Ukraine – EU: in the process of large-scale reforms

The Association Agreement with the European Union, ratified by Ukraine at the time of both tragic and heroic transitions in Ukrainian history, has become a fundamental change for important social transformations.

The main part of the text of the Agreement is a roadmap for economic transformations that should bring the economies of the European Union and Ukraine closer together.

Jurgita Domeikienė
Team Leader

Legislation and administrative procedures are being improved, as well as systematic planning and control of public finances based on the practice and legislation of the European Union.

Day-by-day, this complex economic matter of change is gradually becoming a basis for a new economic pattern for shaping Ukraine as a country that cares about the fair use of the money of its citizens, taxpayers, and creates conditions and incentives for the decent work of both, the state and business, as well as develops convenient IT -solutions to facilitate all the procedures.

In its nature, this is a process of irreversible historical change that allows Ukraine to put an end to the past and to forever forfeit the rudiments of the Soviet economy and public finance management.

In 2019, the European Union’s Public Financial Management Program in Ukraine (EU4PFM) has been launched to assist Ukraine in this area of ​​reform.

Recently, the Project has crossed the equator of implementation of its activities in Ukraine and, during this time, together with partners in Ukraine, European Union experts have achieved significant positive results.

Among the achievements of the Project is not only the development of strategic documents in the field of public finance management and digitalization but also the creation of the concept of IT modernization of all processes in the Accounting Chamber for proper audit and control of public finances.

Following the adoption of these documents, EU4PFM intends to develop the necessary IT solutions, providing full support to the country on the path to change. No less significant processes have already taken place in such important subsystems of public finance management as the tax and customs spheres.

Customs control is a mirror that reflects the face of any country and the source of filling the budget. Today, under the political leadership of the state, customs reforms have become a priority and the European Union has become a reliable partner of Ukraine in this matter. Many changes have taken place in the last two years with the support of the EU. The main ones will be presented further on.

First, Ukraine became significantly closer to ratifying the Convention on Common Transit with the European Union. This step has already been taken with the support of the EU.

From March 2021, all the necessary regulatory and technical framework for the implementation of an electronic transit system modeled on the EU common transit regime has been in place.

Ukrainian companies have the opportunity to work according to European rules of transit movement of goods and make use of the benefits adopted in the EU.

Among the new mechanisms to support big business is the implementation of simplified transit procedures of the European Institute of Authorized Economic Operators (AEO).

The first document was approved by the Cabinet of Ministers of Ukraine (CMU) just one year after the start of the Project. In July 2021, the Cabinet of Ministers also introduced an EU-style monitoring procedure for the institution of authorized economic operators.

EU4PFM provides system support for change. During this time, seminars, round tables, study visits were held for civil servants and the business community, while the experts from Lithuania and Poland shared their own experiences of change in this area.

We are very grateful to our Ukrainian partners, the Ministry of Finance of Ukraine, and the State Customs Service for their active leadership in the change management process. Especially when it comes to finding consumer-friendly IT solutions and mechanisms in the customs sphere. For example, automation of the process of filing customs declarations or an online calculator of customs payments.

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

It is important that the experience of EU countries is heard and that Ukraine manages to find an important balance between the threshold of responsibility and punishment, as a low threshold of responsibility can provoke an avalanche of criminal cases that will not be investigated, thus making criminal punishment for smuggling ineffective.

The efforts of the EU4PMF team in the tax stream have focused on improving digital services for taxpayers and enhancing the efficiency of the State Tax Service.

In particular, with the support of the Project the Concept of the introduction of the single integrated system of rendering of services was developed, drafts of regulatory legal acts concerning the introduction of BEPS initiatives, improvement of rules of transfer pricing, functioning of the single tax account, software for e-cash registers, the module of control ratings of the single tax account.

Currently, the Project’s activities focus on supporting the implementation of an efficient and equitable tax administration system.

The efficiency of the system lies in the optimal ratio of spending resources (both material and time) on the process of paying taxes and customs duties for business and control over this process by government institutions on the one hand, and the result on the other.

Thus, the costs of tax administration for businesses and the state are reasonable, controlled, and efficient.

A fair system of tax collection and customs duties provides a competitive environment with similar conditions applied to all businesses. That is, it makes it impossible for a business that avoids paying taxes (customs duties) or minimizes them to gain a competitive advantage.

In addition, under such conditions, paying taxes becomes a more profitable way for businesses than finding ways to avoid taxation.

Building a fair system creates favorable conditions for doing business, which in turn promotes investment and accelerates the growth of the economy as a whole.

In this light, we support taxpayers’ efforts to build trust in the tax administration and believe that modern tax administration should ensure transparency, equality of taxpayers, and fair business competition.

The main focus is on two main areas.

First of all, we will support measures that promote voluntary compliance with tax laws. As a rule, this means a “win-win” situation where both the tax administration and taxpayers receive 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, which allow you to make tax returns and payments easily and quickly.

Another direction is aimed at helping to combat the shadow economy by implementing effective preventive and control measures.

An important element of the project initiatives is also a change in approaches to the relationship between public finance institutions and taxpayers, namely the establishment of a constructive and public dialogue between government agencies, businesses, and society.

Such communication allows discussing the positions of the parties, in particular on unpopular initiatives, to explain the need for their implementation, and to find a point of contact between business and government institutions.

Businesses need to be involved in discussing important decisions, its position should be considered in further adoption.

With the support of the EU, the State Tax Service Contact Center will be modernized, the functionality of the single tax account is going to be improved to simplify payments to the budget, a modern document management system to be purchased, and applications for software cash registers to be developed and improved.

The project provides methodological and technical support for the implementation of electronic audits, improvement of audit pricing, etc.

The next stage is the implementation of BEPS initiatives (counteraction to the erosion of the tax base and withdrawal of profits from taxation).

In particular, it is the introduction of automatic information exchange procedures, which are successfully used in more than 100 countries. As a result, it leads to an increase in tax revenues.

The world has introduced two standards for automatic exchange of information for tax purposes: Country-by-Country Reporting, which aims to counteract the erosion of the tax base by multinational companies, and the Common Reporting Standard for the exchange of information on balances on financial accounts of individuals.

This system eliminates the possibility of hiding the income of individual taxpayers in financial institutions of other countries, helps to fight corruption and money laundering. EU4PFM also provides methodological and IT support for the implementation of these measures.

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 – IFIs and the State Tax Service – by the end of next year.

Finally, some ideas on human resource management and organizational change. Although we talk about this at the end, it does not mean that it is the least important part of our project.

It is worth noting that sometimes human resource management in an organization is greatly underestimated. However, we must not forget that the success of the organization depends on the right people and a well-functioning personnel management system, which allows ensuring that certain positions are staffed by people with the necessary skills and abilities (ie competencies) and thus bring maximum benefit to the organization.

The results of all well-planned changes directly depend on the people who implement them daily in public finance management institutions.

The project continues its activities by implementing a strategic approach to human resource management: currently, the Ministry of Finance of Ukraine, the State Tax Service, the State Customs Service, and the Accounting Chamber use a modern tool of personnel management – staff survey – as a tool to involve staff in staff development.

Our partner institutions have developed personnel management strategies and planned activities for their implementation. Together with the Ministry of Finance, we are almost completing the development of the Competence System, which can become the basis for the entire personnel management process.

We hope that this practice can later be successfully applied in other organizations.

There are many other achievements, but the Project has paid a lot of attention to capacity-building activities – even the online mode helps to reach employees in all regions of Ukraine and disseminate best practices and knowledge during our training and seminars. In the first half of this year alone, we conducted 33 trainings on various topics of personnel management, which were attended by more than 1,600 people.

These are just some examples of qualitative and systemic transformations in this area, which have already taken place due to the historical choice of Ukrainians – the Revolution of Dignity, which required the European development of Ukraine. This future, for which the Ukrainian people gave their lives, has already become a reality. And this is our common choice and the path that Ukraine and the EU are following together.