Doubtful tax twists, gray markets, and extortions at customs: why Ukraine will not buy hundreds of Byraktars and who is to blame for this
For more than a week, Ukrainians have been proud of the fact that they collected 600 million UAH for the Byraktars. However, they hardly imagine that the fight against counterfeit cigarettes alone would allow Ukraine to buy about 200 fighter jets or even 8 F-16 aircraft. Even more, would be allowed to purchase with money withdrawn from the budget from the so-called hardships. A dozen bribes at the customs office for uncleared cars (on EU number plates) would pay for more than one car for the front.
An international conference will start in Lugano on Monday, where Ukraine will present the concept of post-war reconstruction. However, somewhere in the internal concepts of reconstruction, President Zelensky needs to write with a red marker: stop doubtful tax twists, stop the illegal market of fuel, cigarettes, and alcohol and overcome the kickbacks at the customs and fiscal authorities.
Doubtful tax twists: how to sell tomatoes twice, and return VAT
A week before the full-scale war, Danylo Hetmantsev, head of the tax and customs policy committee, said in a video post on his Telegram channel that the so-called "doubtful tax twists" do not work in Ukraine.
"In December, when irreversible processes began in the State Tax Service, no one believed that "tax twists" as a phenomenon in this country could be stopped. In two months, we proved that it is possible, that it is real and that VAT fraud can not work at all. Undoubtedly, this causes the howl of a whole number of converters, thieves and those who have fed all their lives on tax evasion, but this is precisely what shows that we and the STS are doing the right things," Hetmantsev said.
In fact, Hetmantsev's statement was a response to the accusation of the former head of the Ministry of Finance and NSDC Secretary Oleksandr Danylyuk that the head of the tax committee received "supervision" of the tax office and its schemes. In particular, tax twists.
How the fight between Hetmantsev and Danylyuk would have ended is unknown, but February 24 came. However, even the war did not stop the twist tax market. Someone estimates losses for the budget from them at 2 billion hryvnias a month, someone at 5 billion dollars a year.
What are doubtful tax twists?
"Doubtful tax twists" is a form of theft from the state budget of revenue from value-added tax. It is a scheme where you either do not pay VAT, or you are refunded with VAT that you should not receive. When, without making an actual sale of a product, one company buys in one that has a tax credit, and the other sells it.
This scheme was described in detail by Deputy Maryan Zablotskyi in a column for "Economichna Pravda".
Each of us in the store pays 20% VAT in good faith. What cannot be said about the manufacturer? So you imported tomatoes for UAH 50, and the importer pays UAH 10 during the import. There is a producer of tomato paste in Ukraine who buys these tomatoes for 60 UAH and pays a VAT of 10 UAH. Then he sells the produced paste for UAH 120 and pays another 20%. But if the tomatoes are already sold on the market, in this case, the importer will not receive anything from the state. But he can say he sold them to a tomato paste maker, they make a sham transaction, and it benefits both. Both receive profit from the state.
There are companies that sell the tax credit, there are those that buy it. Those who sell goods for cash have the greatest desire to sell. For example, imported vegetables or fruits are very easy to sell in the market for cash. And then you can fictitiously sell the same product to some security company to feed employees.
"Security companies and jewellers have the highest VAT to pay, so they are often tempted to use the scroll. Another large segment is farmers because it is easiest for them to explain their expenses. No one will ever accurately calculate how much fuel a farmer used during sowing. This is not a transport company, where everything can be seen by mileage. Therefore, you can say that you bought a thousand litres of fuel, but in fact only half of it. If a security company suddenly buys a lot of shoes for employees, this is also, most likely, a tax twist," says the interlocutor of the publication.
On June 8, the State Tax Service submitted to the State Treasury applications for budget reimbursement of value-added tax for UAH 9.5 billion.
However, even the deputies believe that among them there are those who can use tax tricks.
Previously, through the register of tax invoices, you could quickly see the problem. If suddenly the clothes turned into the grain, and the grain into fertilizers, then this, most likely, is a tax twist. And an experienced taxman, in principle, can clearly see where this chain is logical and where it is strange.
At the same time, there are only a few people in the country who come to the stock exchange to find out how to return VAT. "Here I brought the shoes, I go to this company and say: find me a company through which I can sell them. The tax office should see this, but they have a perfect cover: oh, they didn't notice. It turns out for the 4-10 million per month of earnings," says the interlocutor of the publication.
It's just that instead of seeing the trouble, the taxman gets a kickback.
Now let's talk about one of the Klondike bribes for tax officials - the tobacco market.
Cigarettes, cigarillos in bulk and in three shifts: how to become a millionaire in a year
According to the Kantar Ukraine agency, in November 2021 the share of illegal tobacco products in Ukraine increased to a record 20.4%. This is the highest figure in eleven years of research. The company estimated losses from the illegal tobacco market as 15.5 billion.
The war did not improve this situation. They say that today some factories produce counterfeits in two out of three shifts. "This has never happened before, and its producers earn even more than before the war," - notes the interlocutor of the publication.
Even if you don't smoke, like the author, you can detect a counterfeit very easily - all taxes on a pack of cigarettes amount to almost 40 hryvnias. If you bought cigarettes for 34 or 36 hryvnias, then you bought a pack on which taxes were not paid.
Before the 2014 war, counterfeit goods produced in Ukraine were mainly for sale abroad. But in recent years, the situation has changed, and 89% of illegal products on the market began to be occupied by Ukrainian-made counterfeit goods.
Illegal tobacco products are mostly sold in kiosks or hand-me-downs, even individually or in bulk. And for wholesalers, there are specialized Telegram channels where sales are conducted.
One of the main sales schemes is the sale with labelling for Duty-Free, that is, this product should supposedly be sold only in specialized duty-free shops, but in fact, it can be on the streets.
Other ways of circumventing the law follow. The first is fake excise stamps. The manufacturer buys one stamp and duplicates it 10, 20, or even 100 times. These brands are identical, and you can buy several packs of cigarettes with the same brands. The second subgroup is fakes of legal manufacturers such as Winston, Kent, Marlboro, and Lucky Strike. The third subgroup is illegal imports. Now this category has significantly decreased due to the war because the main suppliers were from the temporarily occupied territories of Ukraine and Belarus. But they can still deliver from Moldova or the UAE.
Today, for example, there are about 40 points of sales of illegal products operating in the centre of Kharkiv. In Zaporizhzhia, the number of illegal points increased from 33 to 90. The same trade is flourishing in Dnipro, Kamiansk, and Kryvyi Rih. In Kyiv, the number of illegal points is also growing.
Do you know who the producers of illegal products are? Usually, the factories in Lviv Oblast and Zhovti Vody are heard most in a negative context.
The factory in Vinnyki is traditionally associated with Georgy Kozlovsky, and the factory in Zhovti Vody with Mykola Martynenko. The investigation into the Zhovti Vody factory was broadcasted on Radio Svoboda.
Even though the Federal Tax Service notes the Vinnyki factory as one of the largest taxpayers, according to Kantar, 62% of products marked for Duty-Free or for export, which are sold in Ukraine, are produced at the Vinnyki tobacco factory (Lviv). The share of unknown producers is 23%, and "United Tobacco" LLC (Zhovti Vody) - is 15%.
"62% of this group of goods is produced at the Vynnyki factory ... It makes the maximum contribution to the formation of illegal products of this group. These are mainly packs that are marked as Duty-Free. But they are sold in ordinary trade," says an expert from the Kantar agency Ukraine" Tatyana Sverdlyk.
According to her, such a scheme allows the Lviv manufacturer to underpay excise duty to the state budget at the level of UAH 30-35 per pack.
Not only analysts but also law enforcement officers are aware of the situation.
"We have certain criminal proceedings, in particular, against one of the large manufacturers in the Lviv region and against the factory in Zhovti Vody (Dnipropetrovsk region)," admitted the then head of the Federal Security Service, and currently the Federal Security Service, Vadym Melnyk in an interview with the Mind publication in August in 2021.
In August 2021, employees of the State Fiscal Service complained that they could not enter the territory of the United Tobacco tobacco factory to conduct investigative actions in the case of the production of counterfeit products. The entrances to the factory territory were unexpectedly blocked by a group of unidentified persons and trucks with soil.
Last year, in the spring, President Volodymyr Zelensky summoned all the responsible officials and arranged a grandiose scandal for them with the demand to "close the bench" on illegal fuel, alcohol and tobacco and not to disgrace his name. Deputies and the Cabinet of Ministers wrote a program of action, but the matter did not go beyond words.
Instead, they started a war over who would lead the BEB. Behind the scenes of this process stood Mr. Gmyrin, a member of the Yanukovych-era team. As sources told Censor.NET, the Office of the President secretly supported Melnyk's candidacy not without the influence of Gmyrin. Until a certain time, Gmyrin was friends with the Office through Serhii Shefir, but after he lost his influence, he found other ways to influence the processes.
Interlocutors of the publication hint that he is now "friends" with Hetmantsev.
Last year, the head of the tax committee had a big argument with Melnyk about who should fight more against the gray market. The BEB did not achieve serious gains, but the tax department, which has been overseen by Hetmantsev since the winter, has enough mechanisms to stop gray imports.
"None of these enterprises will work without the patronage of tax officials. Anyway, all these enterprises submit some reports. When you have 88% of the revenue from a pack of cigarettes, where 2 cigars were smoked, then such a market does not exist. It cannot exist. And the Department of Excise Policy of the Tax should draw the attention of law enforcement officers to this. He can withdraw the license or not accept the report," says the interlocutor.
The department also sees reports on tobacco waste. In all factories, it is less than 1%, and in one factory it is 33%. What is this, if not grey schemes?
For all these games of counterfeit producers, the tax department, the State Security Service, the prosecutor's office, and the Security Service of Ukraine should be punished.
In fact, it seems that only the deputy head of the State Security Service Naumov, who, as market participants are convinced, is still profiting from smuggling, the goods for which he is given by one of the gray factories, were "snuggles".
"You will be surprised, but Akst and Naumov, who are sitting in a Serbian prison, are still making money from the double bass. They once invested in the product, and now their younger partner continues to transport it," says one of the interlocutors of the publication.
Customs: where the queues of cars came from and how much they cost
At this point, we will move on to another headache of our economy - customs.
According to the sources of Censor.NET, even in the first days of the war, when the whole country was in shock, individual customs officers quickly established a "line of release" of legally obliged to stay men from the country. The fee was 10-15 thousand dollars. The publication is aware of a case where a man paid 14,000 euros to cross the border illegally, and he had to wade across the river with a suitcase.
And then the epic with cars began. "In the previous months, they managed to charge for the speed of work, even with a zero-customs clearance rate. There were even 500 euros from the car. Now they have returned the fee and they are forming new rules for underpayment," says the interlocutor of the publication.
"I will explain where the queues of passenger cars at the borders come from. The average number of cars that entered in March 2022 for free customs clearance is half as much as last year for paid customs clearance. Where then do the queues come from? Because before, everyone knew which brokerage companies undercut the import price, and everyone went to them. And everything happened in 5 minutes. And now customs officers simply drive importers to brokerage companies because there is no point in going to a broker because there are no customs. And that's why they compost your brain, check the declaration three times - and hence the queues." - explains the interlocutor.
Clothes are imported according to old schemes - either by beads or through parcels, or because of a broken invoice, they are bought not from Dolce & Gabbana, but from Hungarian pads. And taxes are paid here from this tenfold lower price. Sources of the publication estimate budget losses from such delivery of elite clothes alone at 1-1.5 million euros per month.
There are other interesting schemes - this is "clearing the goods" for the military unit. So, a few months ago, the military received stiletto shoes.
The work of customs with the above-mentioned cigarettes is no less colourful.
"To buy a machine with cigarettes at the factory, you need to pay about 1,700 euros in cash. To take a double bass out of the country, you need to pay 120,000 euros at our border section. This is for one thousand boxes. A machine with slims is about two thousand boxes. A machine of standard cigarettes is 1,200 or 1,500 boxes. Multiply by 120 euros per box and you know how much the officials charge. Now further on - at the western customs, for example, at the Hungarian one, you will be charged another 100,000 euros for your section of the border. And another 10,000 will be taken from you a carrier who will risk a car," the publication's source says.
So, are there the same corrupt people in the EU as here? At least there is always a mafia there. Basically, cars with contraband are unloaded at a verified warehouse and then transported in small batches to various points. Driving a full car across Europe is considered the highest stage of idiocy in this market.
How much will smugglers earn? In Europe, such a car will cost 500-550 thousand euros. That is, by investing 400 thousand, you can earn 100 thousand euros. You can get a margin from smuggling already in a month. They invest in it not thousands of euros, but millions.
There is no systematic approach to smuggling at the border.
"This does not mean that it is good, it's just that it happens in an unsystematic way and with much greater losses for the state," says the interlocutor of the publication.
"Now everything is crumbling at the level of the middle echelon - at the level of the chiefs of customs", - says the interlocutor.
Since the beginning of the full-scale war, the most famous quote after wishing for a Russian ship is the intention of the chairman of the tax committee to pluck geese. However, the head of the committee and the bodies he oversees usually see ordinary Ukrainians as geese. But they prefer not to see the gray areas of the market, where tens of billions of hryvnias disappear. This only fuels suspicions that they are not doing it just out of inattention.
This Censor.NET article is just the beginning of a series of materials about what remains in the grey zone of the Ukrainian economy. We will dwell in more detail on the topics of difficulties, the illegal market of fuel, cigarettes, alcohol, and customs schemes with comments from officials and manufacturers.
Tatiana Nikolayenko, Censor.NET
