How, by how much, and when will taxes be raised?" Hetmantsev answers.

- The process of adopting legislation on the BES was not easy. But the result is what matters, as they say. Do we have a chance for a real renewal of this relatively young institution?

- Reforming the BES is a very vivid example of what a structural beacon is and why it is in our interest to fulfill it. An effective, transparent Bureau of Economic Security is what the country needs. We really need a single law enforcement agency in the economic sector. Without duplication of functions of investigating economic crimes by other institutions - the SBU, the National Police and even the SBI. This is a reform that we promised to business back in 2019 and which, unfortunately, failed at the first attempt. But we will definitely see it through. Business, society, and the state need it, and we will not be able to overcome the economic shadow without it.

The Bureau will become the only body that will investigate economic crimes, it will have the trust of white law-abiding businesses and will cause fear of those who are used to circumventing the law. At one time, a former tax police officer was the first to head this body. It was a mistake that prevented the reform from being implemented, reducing it to a simple change of signs. The authorities have recognized this mistake and updated the legislation, providing additional safeguards against its repetition.

- What will be the fate of other structures that are now so actively "fighting" economic crimes? These days I attended a discussion organized by the Kyiv International Economic Forum, where the participants said that after a few months of lull, when no one came to entrepreneurs with searches and "pulled-from-their-finger" inspections, the pressure on business in this way has returned.

- I agree that the situation is absolutely unsatisfactory. A lot of government agencies are engaged in the "fight" (in quotation marks) against economic crimes. And it is very difficult to find out whether they are really preventing crimes or (some of them) are involved in them. The SBU, the National Police, the State Bureau of Investigation... It would seem that where is the State Bureau of Investigation and where are the economic crimes? Where is the SBI, and where is the gambling business or distilleries? This institution is supposed to investigate crimes and offenses of officials. But no. Law enforcement officers are running to businesses with searches as if they were "anointed with honey." And this is unacceptable. I fully support business in this and have repeatedly taken measures to stop it.

But only a renewed BES - as an independent and strong institution with exclusive powers and functions - will help to stop this practice systematically. Until now, due to the BES's inability to concentrate all investigations of economic crimes in one place, "related parties" have had some grounds to act. Often at their own discretion and in their own interest.

As soon as we see that the Bureau of Economic Security is turning into a strong structure capable of performing the relevant tasks, the practice of "seven nannies" or business supervisors should stop, and each law enforcement agency has something to do within its own powers, in its own areas.

The BES, by the way, was already taking some steps in the right direction even before the new law was passed. For example, I am very impressed with their position on illegal tobacco. They have really stopped the massive illegal production of tobacco products in Ukraine.

If we see that the Bureau has succeeded and is doing the same systematic work in other areas, I think that at the political level we should "slap the hands" of the other agencies involved in investigating economic crimes.

- Another upcoming reform that you mentioned in the context of Ukraine's cooperation with the International Monetary Fund concerns the institutional and personnel renewal of the Customs. The government and parliament are finalizing the relevant legislation. When is the result?

- These days, the NABU has conducted regular searches at the Customs, and later the SBU searched some of its officials. Please note: no one was surprised by these events. On the contrary, it was expected for many. Everyone understands that it is high time to reform the agency. The relevant draft law should be the same as the already adopted law on the renewal of the BES. What needs to be done with the Customs is well known. These include, among other things, certain mechanical actions, such as rotation of customs officers, arrangement of joint checkpoints, customs clearance at customs offices other than the checkpoint, prevention of interference in customs clearance by law enforcement officers, installation of modern scanners... This is what we see abroad, in developed countries, and what has been discussed a thousand times in Ukraine. But for some reason, during previous attempts at reform, this was never done. Why? I think it is because the Customs management lacks political carte blanche to implement such a reform. Because people in a "suspended state", in the status of acting heads (and acting heads have been heading the Customs for almost three years), cannot do this if there is no political support.

That is why the old "swamp" has been there for years. And globally, unfortunately, we do not see anything good at the Customs. We see only a few isolated examples of the implementation of plans, sometimes we notice some point shifts. However, we are not talking about cardinal systemic changes yet. In order for them to take place, we need to reboot the management, protect it from political influence, and certify the staff. In fact, this is what the Memorandum of Understanding with the IMF provides for: a full transition to a contractual system and a new full-fledged manager with political carte blanche to implement the reform.

- When will this happen?

- We have until October to pass the necessary law. Then the commission will be formed by December. And at the beginning of next year, the Customs will get a new head. Then, just like in the BES, it will have 18 months to certify all staff.

- You mentioned that, unlike inprevious years, the Customs has recently been reporting on the fulfillment of monthly revenue plans. Are we talking about real changes or have the plans and targets become more "modest"?

- So to speak, at the mechanical level, the Customs management is really doing everything to fulfill the tasks assigned to the agency. Despite the fact that in June we underperformed the targets by 1%, since the beginning of the year the revenue plan has been exceeded by 7.3%, and the budget has received an additional UAH 19 billion thanks to the Customs. But in reality, this is obviously not enough. After all, there have been no systemic changes in the work of the agency, corruption risks and opportunities for abuse remain.

TAX SUCCESSES: DE-SHADOWING ALONE IS NOT ENOUGH TO FILL THE BUDGET

- What about tax revenues now? Are there any more reserves?

- We see great potential in the continued de-shadowing of the national economy. In general, we estimate the potential impact of unshadowing on budget revenues at UAH 500 billion a year, but it is difficult to cope with this in one fell swoop.

As for the current results of the Tax Service, we are already talking about a plus of UAH 53.3 billion in revenues since the beginning of the year. If we compare the figures year-on-year, in 2024 we will see a 1.5-fold increase in revenues. In particular, VAT revenues grew by 48.8%, which is significantly higher than inflation and obviously indicates that the only source of this overperformance is the de-shadowing efforts. After all, we are talking about a significant increase in numbers even compared to the peaceful year of 2021, despite the fact that the economy has obviously shrunk.

Changes are noticeable in the volume of revenues from certain industries with traditionally high risks of being in the "shadow". For example, since the beginning of the year, we have received 18.1% of tax revenues from the production and sale of alcohol in addition to the plan. Legal sales of ethyl alcohol increased by 30% last year. It is clear that people have not started drinking more - we have lost our territories, millions of Ukrainians have left or are currently staying in the territories temporarily occupied by the enemy... But the volume of official alcohol sales has increased. The reason is the de-shadowing of the industry.

And this is confirmed by other figures. For example, the tax efficiency of VAT for alcoholic beverage companies has increased from 4.5% in 2021 to 6.16% now, in 2024. For example, at Global Spirit Group (Khortytsia brand), the tax burden increased from 5.3% to 7.84%, at LVN Limited (Nemyriv) - from 4.7% to 8.5%, at the Hetman plant - from 0% to almost 14%. This is an indicator that the industry is coming out of the shadows.

Another example is jewelry. The total tax burden on the industry increased 2.2 times year-on-year.

Speaking of fuel, the tax burden in the 1st quarter was UAH 2 per liter, while in 2022 it was UAH 1.12, and in 2023 it was UAH 1.8. That is, the amount of taxes paid per liter is constantly growing, which we can see in the context of virtually every major gas station chain. Or the same tobacco: despite the fact that the situation on the market is still not what it should be in a civilized country, this year the "shadow" has decreased from the previous 23% to 18%. And the BES, as I said, seems to have taken this industry seriously.

- What about sales of electronic equipment? I have seen statistics according to which 240 thousand iPhones were officially sold in Ukraine last year ,and new users registered almost a million devicesin Apple's services .What is the difference?

- We are now carefully working on this market. The electronics market is one of the most complex and powerful in terms of its fiscal potential. Unfortunately, changes are still slow, although we have already seen some results. For example, we can say that tax payments for the first five months of this year increased by one billion hryvnias compared to last year, and the tax burden and VAT efficiency increased from 1.35 to 1.59%.

Of course, this is not enough. Unfortunately, the industry is characterized by the fact that a huge volume of products is in the "shadows" and products are imported illegally. There are also large, wealthy chains and stores that sell electronics through individual entrepreneurs, minimizing taxes. The tax authorities are now actively fighting such schemes. I would like to address the owners of the networks with a clear message: we will not allow them to work as before. Everyone will either work in the black or not at all. We already have UAH 1.7 billion of additional charges in the industry as a result of control and verification measures. And it will continue, as they say... By the way, I am grateful to such large networks: Comfy, Foxtrot, Allo, who heard the state and stopped illegal practices.

- But despite certain changes in the markets of excisable goods and in the taxation of other industries, despite the overfulfillment of tax revenue plans, it is already clear that this money will not be enough for the state at war (even with international financial assistance). Government officials are thinking about how to solve the problem. Is it just a matter of raising taxes or potentially turning on the money printing press?

- Let's go through the options that are on the table. The first source is the aforementioned de-shadowing. It is happening, but its current pace is obviously not enough to cover the deficit of UAH 200 billion, which, in my opinion, was very modestly defined by the Minister of Finance. According to my calculations, the amount is more than twice as much.

Another source is an increase in borrowing on the domestic market through government bonds. But this resource is limited, and the potential of such borrowings is almost exhausted. Another option is the forced conversion of local budget balances into bonds, which is about UAH 150 billion, but I think this is a very bad decision. An "extra-bad" way to find resources is through accelerated devaluation and emission.

Another bad solution (unfortunately, there are virtually no "good" ones left) is to raise taxes. We have already approved a draft law on raising fuel taxes to the European level, recommending it for the second reading. The potential for a gradual increase in excise taxes in 2024 is UAH 2.7 billion per month. The committee is also considering a draft law on raising tobacco taxes.

But these are not the last changes. We expect proposals from the Cabinet of Ministers on how to solve the problem of total underfunding. There are no final options yet.

- However, there is information at the insider level about a possible increase in the military tax to 5% and VAT to 23% .

- It's just insider information or rumors. We have no right to discuss this until we see official proposals from the government. You heard the Prime Minister: the issue of raising taxes at the level of the Cabinet of Ministers is not being discussed now. Moreover, projects related to additional non-military expenditures are being discussed, such as the cashback program for goods produced in Ukraine prepared by the Ministry of Economy.

As a person who, believe me, is very deeply involved in public finance and sees the whole picture, it is difficult for me to imagine what the sources of funding for all these projects could be. But I propose to give the Cabinet of Ministers the opportunity to make public its own vision of budget revenues. Then we will comment on the feasibility of the proposed solutions.

- But if we hypothetically talk about raising taxes as an option?

- I can only say one thing: the only way to quickly get the funds needed for the country is through changes to the main taxes, such as VAT and military duty. There are no other options.

If we talk about the issue of bonds, this is - as I have already said - the worst option. Because emission is inflation, it is, in fact, a tax on the poor. In 2022, we practiced issuing UAH 400 billion worth of bonds, which, among other things, provoked inflation of 26%. Now the financial situation in the country is definitely better than in the first year of the war. Inflation is very low at 3.3%, and foreign exchange reserves are at historically high levels. The Memorandum of Cooperation with the International Monetary Fund provides for the possibility of a budget issue procedure after consultations between the Ministry of Finance, the NBU and the IMF, if other sources of covering the budget deficit are exhausted. However, the issue is also limited to a maximum of UAH 50 billion per quarter.

- This means potentially UAH100 billion by the end of the year.

- Potentially, yes. But we would not want to turn on this instrument at all, because it is bad, the worst of all the options that are available now.

- But given the rumors surrounding the resignation of the government, can we assume that the old Cabinet will submit a bill on tax increases and resign to deflect all the negative attention?

- If the Cabinet resigns - which I personally do not believe in, as I consider it a dangerous decision - all the bills introduced by this government and not yet adopted by the Verkhovna Rada will be considered withdrawn. And the new Cabinet will be forced to submit its own draft with a version of the tax changes. Therefore, a "trick" with shifting the negative is hardly possible. And I am convinced that few people in our team think about negativity and ratings when it comes to the decisions the country needs.

NEW INITIATIVES: BOOKING, LENDING AND IMPLEMENTATION OF EUROPEAN STANDARDS

- Just last week, the management of the National Bank of Ukraine presented a report to the Parliament's Financial Committee. What are your impressions and conclusions?

- First, I highly appreciate the work of the National Bank team. I believe that it worked brilliantly in 2022 and now continues to confidently respond to the unprecedented challenges that the country faces in the context of war. At the same time, among the individual nuances of the NBU's work, I would like to draw attention to the fact that it should not operate in a vacuum. And the regulator's main constitutional function - ensuring the stability of the national currency - should not be carried out without taking into account the overall economic situation in the country. Because if the national economy does not work, the stability of the hryvnia will (a) be of no use to anyone, and (b) be virtually impossible to ensure. Therefore, in order not to harm the economy, every step should be taken in consultation with the Ministry of Finance and the Cabinet of Ministers and with an eye to the development of the national economy.

In this context, most of the questions asked by MPs to the NBU Governor at the committee meeting concerned lending. Unfortunately, its level in the country is catastrophically low. And given the situation with the NBU's discount rate and its macrofinancial policy in general, lending is driven exclusively by the government programs Affordable Loans 5-7-9% and eOselya. At the same time, mortgage lending is still very slow. There is virtually no commercial lending on terms acceptable to borrowers outside of the Affordable Loans program. And all this is very harmful to the economy.

The second crucial issue that we are raising with the NBU is to accelerate the fight against the use of non-cash payments for "black" (we used to call them "cash") transactions - the so-called dropers and other schemes. Returning to the topic of electronics trading, when we visit the websites of large networks, we see offers to buy equipment for cryptocurrency, and we can also exchange regular money for crypto. This is unacceptable. We drew the NBU Governor's attention to these and other issues. The hearing will be followed by a committee decision containing an official assessment.