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Shadow labor market displaces smuggling in anti-rating of largest tax minimization schemes in 2020 – CASE study

KYIV. Nov 23 (Interfax-Ukraine) – The shadow labor market and payment of wages in "envelopes" in 2020 led to the largest losses of the state budget compared to other tax minimization schemes – UAH 110-150 billion per year, displacing smuggling and violation of customs rules in the anti-rating (UAH 70-120 billion per year), according to a study by the Center for Social and Economic Research CASE Ukraine of the Institute of Social and Economic Transformation.

As the authors of the study note, smuggling and violation of customs rules have led the anti-rating of tax minimization schemes for four years.

According to CASE estimates, due to counterfeit products, the state budget loses UAH 38-43 billion a year, due to illegal VAT refunds from the budget and fictitious entrepreneurship – UAH 24-30 billion, due to the shadow land lease market – UAH 10-46.5 billion, due to abuse of tax incentives and preferences – UAH 6-10 billion, due to the distortion of the tax base (hiding sales volumes) – UAH 1-6.3 billion.

The authors of the study note the importance of the institutional reform of the State Customs Service, the establishment of the exchange of customs information with other countries, the increase in the material support of border guards and the effectiveness of the Bureau of Economic Security in solving such problems.

In addition, Ukraine should liberalize archaic labor legislation, reduce burden on the wage budget to the target of 20%, the CASE notes.

CASE also sees the need to replace the "too broad fiscalization" of the second and third groups of single taxpayers on a simplified system with using cash registers exclusively for risky taxpayer categories, as well as to radically simplify tax administration and make it less vulnerable to corruption pressure through corporate tax reform (tax on withdrawn capital).