Not to freeze business ready money - preliminary results of the Business Ombudsman's investigation into tax invoices suspension and riskiness in the VAT system
Since the announcement of the Business Ombudsman's own investigation into tax invoices suspension and riskiness in the VAT administration, the Business Ombudsman Council’s team (BOC) has already managed to develop a large questionnaire and send it out to 70+ business associations, as well as requests to over a dozen of state bodies and start a systemic analysis of about 1.5k of individual cases from its own database.
According to the Business Ombudsman preliminary assessment, business concerns and complaints indeed have real grounds, both short- and long-term.
During the last quarter, changes to the legislation, which caused unforeseen and duly unpredictable results by the state itself were made. In particular, October changes to Resolution of the Cabinet of Ministers No. 1165, which caught business by surprise, look telling. Before, business had no problems with tax invoices suspension for years, and now it has to submit additional extensive documentation. Moreover, an unclear haste to change the SMKOR automated system algorithms, and most importantly, what was the goal of these changes and whether it was finally achieved.
The lack of SMKOR algorithms accuracy causing tax documents suspension for bona fide businesses has been observed for a longer period of time. It is confirmed by a large number of registered invoices by tax authorities themselves, either at the regional or central level. Meanwhile, submitting one package of documents takes an unreasonably long time, which means either distracting a full-time accountant from his or her everyday work, or additional costs for professional consultants.
Since SMKOR system launch, the source of problems has been the lack of proper justification of decisions. The State Tax Service also recognizes this problem and in autumn it already issued an explanatory letter on how to substantiate decisions on riskiness. Nevertheless, decisions on non-acceptance of data tables and refusal to register tax invoices are often still limited to ticking one of the general grounds. It drives the business into a dead end, because of making it spend additional resources on finding out specific circumstances in its case. Creation of communication platforms and hotlines helped in general, but it is worthwhile for the tax authority to explain everything in advance, especially since it is exactly its weak point later in court.
As a result, these technical problems lead to the vicious practice of filling the budget at the expense of working capital of enterprises. Considering that the supplier, whose invoice was blocked, has a tax liability, but his buyer will not have the right to a tax credit until the same invoice is registered, the state budget is month by month filled with amounts that will still be returned to enterprises in the future, yet their value will decrease for the latter over time. In other words, at the administrative and judicial appeal levels, there is a large proportion of decisions in favor of taxpayers, and tax invoices are registered after all, once the appeal procedures are complete, but it can take either a month or over three years until the court decision is implemented. During this time, the state de facto uses the working capital of enterprises for free, without compensating any economic losses.
“We are all aware that the state now primarily finances the defense of Ukraine”, said Business Ombudsman Roman Waschuk, but customizing automated tax systems to temporarily replenish budget accounts is a short-sighted doping freezing ready money of that very law-abiding business that should ensure viability and recovery of the country”.
The Business Ombudsman Council’s investigation is in progress and each of the above circumstances (and more) will be put under scrutiny. The investigation final results will be published by the institution in the coming year at boi.org.ua.