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How Do Ukrainian Farmers Get Out Of the ‘Shadow’?

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Each year, the agricultural sector is filled up with ‘shadow’ UAH 16 Billion. The World Bank says that farmers draw at least half of the ​​grain crops area into a ‘shadow’. CASE Ukraine`s senior economist Volodymyr Dubrovsky, while commenting to ‘Agravery’ media outlet, calls agro industrial complex one of the smallest sectors of Ukrainian ‘shadow economy’.

Each year, ‘gray imports’ or smuggling is accountable for at least UAH 80 Billion of shadow turnover. Income transfer in the offshore count for UAH 50 Billion annually, underreporting of enterprises’ turnover – UAH 20 Billion annually, under-payment of land tax – UAH 10 Billion annually. He also adds that this is the myth that the majority of ‘shadow businessmen’ come from small and medium businesses (SMEs).

‘SMEs` share of the economy is tiny, only 16% of GDP. Only 7% of SMEs use a simplified taxation system; only 8% of them underreport their turnover. In fact, the export-oriented oligarchic business is mostly ‘shadow-style’. For instance, 75% of goods from Ukraine are exported under so-called indirect contracts. However, this is the way big companies try to survive in competition with multinational companies that have more ‘free’ finances’, the expert comments.

What is the way to stop ‘tax optimization’, according to Volodymyr Dubrovsky? First, it is not profits to be taxed, but capital transfers. The Ministry of Finance has promised to submit the relevant bill to parliament, but has not yet done so. Secondly, finally, to reform the tax police into the Financial Investigation Service (SFR). Such an institution should not harass small and medium-sized businesses, but to investigate tax evasion schemes. For example, schemes with transfer pricing. In addition, the burden on the wage fund should be less. We also need reform of VAT accrual and payment.

December 10, 2017