Chief tax collector Ihor Bilous likens Ukraine to a huge investment bank whose main task is to turn a profit.
This is how the newly appointed head of
Ukraine’s Tax Service addressed the relevance of his background in investment
banking.
His mission is to bring capital in from
Ukraine’s murky black market where an estimated 40-60 percent of gross domestic
product remains hidden. “Last year, a quarter of the country’s budget was
stolen only through frauds involving value added tax,” he says of the
legacy his predecessor, Oleksandr Klymenko. Klymenko is now wanted
for corruption and his assets have been frozen in the European Union.
There are a lot of platforms for money
laundering that had been established by the previous tax authorities, Bilous
adds. “We easily can see all the tax pits, as we have all the
information,” he adds. All major state companies, including gas and oil
monopoly Naftogaz, had been using these tax avoidance pits. More than 30
criminal investigations have already been launched.
Interestingly, the Tax Service wants to
make Crimea a free economic zone with lower taxes if it comes back into Kyiv’s
fold. However, Russia, which recently annexed the peninsula of 2.2 million
people, has a similar project in the works, says Russian Economy Minister
Aleksey Ulyukayev.
Tax breaks are also slated for promising
sectors of the Ukrainian economy. “There are some fundamental industries
that could develop our country and we must create good conditions to attract
investment there. These could be internet technology and agriculture,” he
explains.
He also wants to make it costlier to
conduct business off shore in order to bring capital back to Ukraine. “It is
not a problem for me to open Bloomberg’s website and check the real prices of
commodities and, therefore, what are the real earnings of these companies. Then
we may discuss the tax burden issue with them,” Bilous says, adding that
it’s easier for businesses to pay 10 Ukrainian taxes than engage in risky
schemes.
Experts say that Ukraine loses $10.2
billion annually due to offshore tax optimization schemes. The former
investment banker says that many large Ukrainian companies are not contributing
their fair share of taxes to the state budget.
Sabotage within Tax Service system
There are 48,000 Tax Service employees,
of whom 7,000 are tax police officers. “It is a huge army,” Bilous
admits, adding that the staff could be halved and still do the same amount of
work.
“That is why people live and work
like it is their last day. They do not obey my orders,” laments the tax
agency chief. According to Bilous, the agency’s work gets sabotaged from the
inside, while it’s difficult to find new hires because the agency is undergoing
changes.
Bilous’s career challenges
As for pedigrees, Bilous was born in
Ternopil, is a member of Plast, a Ukrainian scout organization, and holds a
degree in international finance from Northumbria University in the UK. He is
seen as “fresh blood” at the tax agency. His resume includes
employment at UBS, a Swiss global financial services company, and Renaissance
Capital, an investment bank headquartered in Moscow. His last place of work was
Altius, his own Kyiv-based investment boutique.
People with such prolific private-sector
experience usually avoid the civil service because salaries are much lower. A
first deputy minister usually receives around $870 a month, the same post that
Bilous occupies in the Ministry of Revenues and Duties which is being
liquidated. Meanwhile, a senior manager at an investment bank could earn more
than $10,000 monthly.
However, this is not an issue for
Bilous. “I have my own savings,” he explains.
Moreover, a hub of international
financial organizations – such as the European Bank for Reconstruction and
Development, International Monetary Fund and the World Bank – are ready to
provide additional payments to Ukrainian civil servants to motivate them to
stay away from corruption schemes, he states. “High ranking civil servants
should receive high salaries,” he says.
In a sign of modesty, he does not see
himself as the only person deserving of running the nation’s tax collection
agency. “I told the Prime Minister (Arseniy Yatsenyuk) – if you have
better candidates, hire them,” the former investment-banker recalls.
He was one of the five candidates that
Yatsenyuk considered; others were from the so called Big Four –leading global
audit companies including Deloitte, EY, KPMG and PricewaterhouseCoopers.
The European Business Association helped
with headhunting.
During the interview, the prime minister
asked the same question to all the candidates: “What needs to be changed
(in the Tax Service) tomorrow?”
Bilous saw reducing the number of taxes
as his major project. Meanwhile, other candidates refused to take the position.
“People do not want a job just for two or three months,” the current
Tax Service chairman says.
“There is huge political pressure
on me. And I’m not a politician,” he says, adding that he has not seen his
wife and kids for the past four weeks.
Kyiv Post associate business editor Ivan
Verstyuk and staff writer Vladyslav Golovin can be reached at [email protected] and [email protected] respectively.
