The experts looked into the current situation at the Customs Office and accessed the governmental institution’s performance in ensuring the work in the rear and contributing to the enhancing of defence capabilities of the country.
Speakers: Oleksandr Lazarev, Customs Policy Expert, and Andriy Savarets, CASE Ukraine’s Associate Legal Expert. The discussion was moderated by CASE Ukraine Director Dmytro Boyarchuk.
For the full video of discussion please follow the link (Ukrainian version).
Keynote points of the discussion and abridged expositions of speaker reports are published below.
– How are things going for the Customs Office during the wartime?
Oleksandr Lazarev
Customs offices are mostly processing humanitarian aid now. The majority of economic agents engaged in imports are currently restructuring their operations.
The Customs Service is primarily about logistics, and there currently are big problems with the latter. Most of the logistics processes were concentrated in the Kyiv region. Consequently, most warehouses engaged in storage, shipment lot formation, cargo consolidation and deconsolidation were also located here. The large warehouses were effectively destroyed (razed). This has become one of the reasons why the key importers who accounted for a significant share of customs revenues almost stopped supplying goods on the territory of Ukraine.
Besides the logistics issues, there are also problems with organising customs clearance at customs offices themselves. These offices are out of business at places where the hostilities continue; because of that, huge problems with the cargoes that managed to cross the border of Ukraine at the beginning of the hostilities: these have been caught in the war while in transit. Many shipments have been either not delivered or lost.
News of import duties and VAT cancellation have left the regulatory provision of all these processes behind. Very few goods are currently processed as imports with customs duties duly paid because of grace period for goods listed among the critical imports. This list is constantly updated.
We are now having a foreign trade surplus because of exports superseding imports. Businesses are waiting for the situation to stabilise before starting imports.
Andriy Savarets
In the first days of the war, the Customs Service accounted for 15% of the pre-war revenues. In the peacetime, the budget received an average of 30 billion Hryvnias a month. Hence, customs duty cancellation under the bill No. 7190 (already signed in by the President) has been dictated by the objective realities. Most of the imports that had been brought into the country before the war turned humanitarian aid. Thus, Ukraine is saturated with goods – foodstuffs, clothing, household chemicals etc. – that people need.
– What is currently being brought in as humanitarian aid? What compelled the government to cancel customs duties and VAT?
It is not clear at all now what is being imported as humanitarian aid. The procedure has been simplified to the extent of being impossible to analyse. The permit-based principle of the customs fund has been replaced with a declaratory one.
There is currently no need to obtain any proof of goods being humanitarian aid. It is issued right at the checkpoint by submitting a declaration, which is filled out by the driver and has only the general description of the goods. It can be “shoes, medicines, other items.” Therefore, it is now almost impossible to track what is being imported into Ukraine.
The domestic market continues being saturated with goods that will be used for survival. This has obviously been the main reason for the adoption of the law to cancel customs duties and VAT. The economy needs to be boosted.
– How businesses are operating in absence of payment grace periods or abolished credit caps?
As for payments for services or goods, everyone is using the deferred payment scheme. Since the beginning of the war, no one has paid their invoices and the majority of businesses that had no supply reserves have stopped. On the one hand, this is rather strange but on the other, it is clear how the banks behaved cancelling all overdrafts and credit limits.
–Wil bill No. 7190 affect the restoration of business activity?
The adoption of the law to simplify procedures has enabled a boost of business activities. It is not entirely clear though how these goods will be declared, which of them will be imported without import tax and VAT paid.
The importers are waiting for this law to cancel customs duties and VAT to be signed. Big companies, especially, the international ones are rather wary of the possibility of transferring this 2% turnover. For example, there can be a situation when the same good will be registered with 20% VAT and without it just because it was imported after April 1. How to sell, account and report on it generally? It is a rather complicated procedure, and companies are considering the possibility of doing business on the same terms paying regular import tax and VAT without switching to the simplified system.
It is not clear for now how the customs clearance will be carried out with these simplifications. Companies have been waiting (after the law is signed by the President) for clarifications from the Cabinet of Ministers or the Ministry of Finance on the customs clearance procedure. This is another yet reason for the decline in activity. Most companies are currently awaiting this clarification.
– Should the budget expect some receipts from the Customs Service?
One should not expect them at all for now. Most of the receipts come from either the excise duty or the VAT. Our strongest trading partner is the European Union, the free trade agreement with which provides for the cancellation of all duties on most goods within ten years. It’s been 8 years since now and, if I’m not mistaken, almost all goods have come to flat duty rate. There will be no changes at all as regards the duty but the budget will have a huge gap in VAT receipts.
Currently, the VAT credit is not reimbursed as the state uses this money for defence purposes.
All hopes for the Customs Service to remain the breadwinner for our budget, even after the end of the martial law period, will be in vain. The government and the Verkhovna Rada will probably have to change the fiscal system and even do something about the VAT. The Customs Service must be released from VAT administering duty. Most customs problems are related to the customs value, and the problems with the latter are the ones of VAT.
– Why are companies not importing?
Yes, we have problems here due to the introduction of the so-called list of critical imports for which payments can be made in foreign currency. Hence, it is not possible to pay for goods not included in this list.
After the start of hostilities, the cargo in container ships was unloaded in Turkey or Romania and there is a big problem now to have it delivered here. A great deal of the cargo is not in the list of critical imports, so it is not possible to pay for or deliver them onto the territory of Ukraine.
– What are the hurdles companies face when importing?
There are companies that continue this activity but their import transactions are facing logistical problems due to the lack of warehouses. There are big problems with transport availability: foreign carriers are not very happy now to deliver goods on the territory of Ukraine, and our carriers are not enough to transport the amount of cargo needed. Plus, they are mostly focused on the carriage of humanitarian goods.
The last thing I saw in the Customs Service report on humanitarian goods clearance was about 10 thousand tons of humanitarian aid processed by all customs offices in one day. This is 500 trucks, the workload of one large checkpoint per day.
The situation is difficult with commercial cargo shipped in sea containers. The storage of sea containers costs money, and shipping lines refuse to issue them for export onto the territory of Ukraine. They demand a 4-5 thousand US dollars deposit for each container.