Although the government promised to address the problem of the shadow economy in Ukraine already in spring, it has yet to move beyond merely professing good intentions. The Day previously reported that Donetsk tax officers decided to attack Ukraine’s gray labor market from the rears and suggested checking the financial condition and income sources of the unemployed. But the
State Tax Administration of Ukraine (DPAU), the country’s main fiscal body, is now planning to further increase punishments for profit-tax dodgers. In particular, according to DPAU First Deputy Chairman Viktor Sheibut, taxmen are considering fining employees who receive “hidden” wages and fail to report them to financial control authorities.
The top tax collector thinks that hired employees should be subject to administrative liability. Sheibut pointed out that the tax administration intends to resort to this punitive method to make it clear to people that receiving official salaries will be much better for them when it comes to assessing their old-age pension later.
Besides, to prevent the illegal turnover of cash, the DPAU wants wages and other incomes to be paid only through transfers.
Sheibut says it is not yet known when fines will be imposed on “underground wage-earners.” It is up to the Cabinet of Ministers, which is now studying this proposal, to make the final decision.
EVERY second UKRAINIAN MAY BE FINED
According to the National Trade Unions Forum, almost every second Ukrainian is in for “tax-related” fines. Employment centers claim that 413,000 people are looking for a job today. Yet experts believe the real number of the unemployed is over 9.2 million Ukrainians, i.e., 46 percent of the able-bodied population.
Yet the DPAU is convinced that administrative liability will help hired employees protect themselves from the arbitrary actions of employers. For the latter are now interested in hiring people as “guest workers” and, taking advantage of the high unemployment in Ukraine, pay them “black” wages.
PROSECUTOR-GENERAL’S OFFICE ALSO FAVORS INCREASED LIABILITY FOR “HIDDEN” WAGE-EARNERS
The Prosecutor-General’s Office of Ukraine also considers it necessary to tighten control over the shadow labor market. Prosecutor-General Oleksandr Medvedko noted recently that prosecutors had opened 11,000 criminal cases for violating the remuneration procedure in the past five years, including 2,000 in 2010 alone. However, in his words, there has been almost no essential progress in “whitening” the wages market.
The reason, according to First Deputy Prosecutor-General Viktor Zanfirov, is that control bodies do not carry out effective inspections. For example, there is inadequate cooperation between tax authorities and the prosecution — the latter is usually furnished with information instead of reports about specific infractions.
Zanfirov says prosecutors’ inspections show that it is usually economically active businesses that fail to pay pension fees and wages. Moreover, this is usually because they flout the law, not because they are in financial difficulty. In the deputy prosecutor-general’s words, this year prosecutors have opened 123 criminal cases that involve violations of payments of Pension Fund contributions. A total of 1,900 officials have been brought to justice and 422 million hryvnias have been recovered. “For this reason, the Prosecutor-General’s Office suggests that the president impose harsher punishments on employers for failure to make contributions to the Pension Fund,” the deputy prosecutor-general argued.
EMPLOYERS TO BE “HOOKED”?
The DPAU believes that about 60 percent of the commercial establishments that are now paying illegal wages will have to be “whitened” in terms of taxation. It is suggested that criminal liability be increased for violating the labor relations law. This is the way officials intend to fill the financial hole in the Pension Fund.
Taxmen say that the Pension Fund is now struggling to remain afloat because it draws fees from minimal, not real, wages. Hence, Ukrainians who know about “hidden” wages being paid are encouraged to complain to law-enforcement bodies about their colleagues and bosses rather than themselves (Article 63 of the Constitution of Ukraine allows people not to testify to their own detriment).
But experts fear that if this DPAU initiative is put into practice, the Ukrainian labor market will see a resurgence of the “glorious” Soviet tradition of “snitching.”
“This will be a ‘hook’ on which the tax administration will be keeping almost everybody,” UNIAN quotes Viacheslav Roi, president of the Federation of Small and Medium Entrepreneurs Union of Ukraine, as saying. “The tax police will easily ‘organize’ several complaints from those who were paid ‘hidden’ wages. Today it is very difficult to force an employee to do so because they do not want to lose their job. There is also a moral and ethical problem, because when the employee was hired, he agreed to being paid ‘under the table.’ Conversely, the danger of a stiff fine will obviously force many to write a letter of complaint. These letters will not be dated. Then the entrepreneur will be shown this letter and told that the date will be put tomorrow and proceedings will be officially instituted unless he or she agrees to fulfill the demand or wish of a tax inspector.”
AN IMPROVED TAXATION SYSTEM WILL REMOVE THE NECESSITY TO INTIMIDATE
Trade unions are concerned over these labor market initiatives. They fear that the new mechanism will “crush” hired employees, who will come under the double pressure of taxmen and the employer. In the opinion of Mykhailo Volynets, president of the Confederation of Free Trade Unions and an MP, the former may fine a person and the latter may dismiss them for admitting receiving “hidden” wages.
“The government is thus laying the problems, which are its own responsibility, onto the shoulders of ordinary people,” he says indignantly to The Day. “It is the employer and the state that should be held responsible for ‘hidden’ wages because they compel people to agree to these conditions. Tell me please, could a hired employee voluntarily accept a ‘hidden’ wages package? For he is aware that these wages will adversely affect the amount of his pension, the vacation and sick-leave pay, and, after all, he will be unable to borrow a loan or get a Schengen visa.”
In the view of Volynets, the government must ease tax pressure on employers, rather than impose new fines, and thus promote the creation of additional jobs. “In this case you will not have to threaten either employees or employers with liability for ‘hidden’ wages,” the trade union leader says.
On the whole, experts are suggesting that, instead of imposing police-style methods of “whitening” the labor market, the government should educate taxpayers to respect the national fiscal system by bringing it into line with European standards. For, according to Serhii Prokhorov, first vice-president of the Ukrainian League of Industrialists and Entrepreneurs, “hidden” wages are just a forced step of business people who are unable to peacefully coexist with a highly bureaucratic taxation system in Ukraine.
