Criminalization for inaccurate customs declarations can harm transparent businesses

15/ 07/ 2021

On July 13, the Verkhovna Rada approved in the first reading the Presidential draft law №5420, which introduces criminal liability for smuggling goods (also, the excisable ones), including for their false declaration. It was because of the introduction of criminal liability for false declaration that the position of the European Business Association on this draft law was negative. Given the controversial situations that sometimes arise in business with customs authorities regarding the determination of customs value, determination of the Ukrainian Customs Commodity Classification Codes for Foreign Trade (UKTZED), and other information specified in the declaration, business fears that this rule could potentially lead to problems even for transparent business. Based on these considerations, back in May, the EBA addressed the Speaker of the Verkhovna Rada with a request to facilitate a significant revision of the draft law with the mandatory involvement of EBA experts in this work. Amendments to Article 2014 of the Criminal Code of Ukraine propose to establish criminal liability for entering inaccurate information in the customs declaration or failure to provide accurate and reliable information about goods or commercial vehicles. According to the EBA experts, the use of such vague wording allows for the possibility of bringing company declarants to justice for unintentional errors in customs declarations and will lead to the need for a 100% preliminary inspection of goods. The situation with the additional accrual of customs duties based on the results of the customs post-audit generally looks catastrophic. The threshold of liability for offenses is set at 147 thousand unpaid customs payments which are unreasonably low. For comparison, liability for tax evasion occurs if non-payment accounts for about UAH 3 million. Also, the draft law provides for over extensive range in the choice of punishment (relatively small fine of 17 thousand UAH or imprisonment for a long term up to 11 years). This carries possible corruption risks. Meanwhile, the European Business Association, given the current situation with the smuggling of excisable goods in Ukraine, in particular tobacco products, conceptually supports the establishment of criminal liability for this offense. Excise tax is significant in the state revenues, and its non-payment due to illegal movement and sale of goods causes a range of negative economic consequences and contributes to the spread of unfair practices. In addition, the smuggling of tobacco products from Ukraine damages the reputation of our country in relations with international partners. According to a study by KPMG, Ukraine is one of the top suppliers of illegal tobacco products to the territory of the European Union. At the same time, the EU already provides for criminal liability for smuggling tobacco products at the legislation level. According to business, the current responsibility for fraud with excisable goods is insufficient and ineffective, but it is not necessary to introduce even worse legislation to put another tick against the problem of combating smuggling. The adoption of draft law №5420 will offset most of the achievements in trade facilitation. The European Business Association reiterates that smuggling, like any economic crime, should be tackled by analytical rather than forceful methods, introducing supply chain fiscalization instead of imitating comprehensive but ineffective control.

It was because of the introduction of criminal liability for “false declaration” that the position of the European Business Association on this draft law was negative. Given the controversial situations that sometimes arise in business with customs authorities regarding the determination of customs value, determination of the Ukrainian Customs Commodity Classification Codes for Foreign Trade (UKTZED), and other information specified in the declaration, business fears that this rule could potentially lead to problems even for transparent business. Based on these considerations, back in May, the EBA addressed the Speaker of the Verkhovna Rada with a request to facilitate a significant revision of the draft law with the mandatory involvement of EBA experts in this work.

Amendments to Article 2014 of the Criminal Code of Ukraine propose to establish criminal liability for entering inaccurate information in the customs declaration or failure to provide accurate and reliable information about goods or commercial vehicles. According to the EBA experts, the use of such vague wording allows for the possibility of bringing company declarants to justice for unintentional errors in customs declarations and will lead to the need for a 100% preliminary inspection of goods. The situation with the additional accrual of customs duties based on the results of the customs post-audit generally looks catastrophic.

The threshold of liability for offenses is set at 147 thousand unpaid customs payments which are unreasonably low. For comparison, liability for tax evasion occurs if non-payment accounts for about UAH 3 million. Also, the draft law provides for over extensive range in the choice of punishment (relatively small fine of 17 thousand UAH or imprisonment for a long term up to 11 years). This carries possible corruption risks.

Meanwhile, the European Business Association, given the current situation with the smuggling of excisable goods in Ukraine, in particular tobacco products, conceptually supports the establishment of criminal liability for this offense. Excise tax is significant in the state revenues, and its non-payment due to illegal movement and sale of goods causes a range of negative economic consequences and contributes to the spread of unfair practices.

In addition, the smuggling of tobacco products from Ukraine damages the reputation of our country in relations with international partners. According to a study by KPMG, Ukraine is one of the top suppliers of illegal tobacco products to the territory of the European Union. At the same time, the EU already provides for criminal liability for smuggling tobacco products at the legislation level.

According to business, the current responsibility for fraud with excisable goods is insufficient and ineffective, but it is not necessary to introduce even worse legislation to put another tick against the problem of combating smuggling. The adoption of draft law №5420 will offset most of the achievements in trade facilitation. The European Business Association reiterates that smuggling, like any economic crime, should be tackled by analytical rather than forceful methods, introducing supply chain fiscalization instead of imitating comprehensive but ineffective control.