Zero customs clearance: cannot be canceled. Practical advice for deputies
Customs clearance conditions and taxes and car imports remain at the top of the hot topics. Tomorrow, at a meeting of the relevant "tax" committee, MPs will consider Bill 7418 , which proposes, in particular, to return VAT, duties and excise duties on vehicles. However, there is no single position among the deputies, and the Main Scientific and Expert Department of the Verkhovna Rada has made many comments on the bill. Experts from the Institute of Car Research have gathered arguments and facts that will help in making a decision.
Alternative Bill 7418-1, initiated by a group of peopleʼs deputies, proposes to leave import benefits for combatants. For the rest of the martial law, they offer a VAT rate of 7% (instead of 20%) and a duty of 5% (instead of 10%), but offer a refund of excise tax. For the category of cars that Ukrainians need the most — worth up to $ 8,000 — this tax often exceeds the cost of the car. That is, the proposed solution also will not solve the problem of affordable customs clearance of cars.
So what should be the solution? Compromise, fair and based on facts rather than assumptions, according to the Institute of Research car market. For an objective analysis, the situation should be analyzed comprehensively, and each of the pros and cons should be considered.
Why do they want to abolish "zero" customs clearance?
The main arguments for the abolition of "zero" customs clearance are constantly changing. Initially, there were queues at the border, which arose due to global changes in traffic flows. As of today, the queues for registration of personal cars have almost disappeared due to the satisfaction of deferred demand, and with them this argument has disappeared.
The next reason was allegedly the mass import of expensive and luxury cars with tax exemption, although the law did not restrict the import of such cars. However, statistics also refuted this argument: mostly Ukrainians brought 14-year-old cars from an affordable price range in the range of $ 2-5 thousand euros from abroad.
Even the chairman of the "tax" committee, Danylo Getmantsev, admitted that there is essentially no national car manufacturer in Ukraine, and the import of cars from abroad does not harm the domestic manufacturer. There are, in fact, two arguments left for the abolition of "zero" customs clearance today.
The first is that the budget is allegedly losing. However, to calculate these losses linearly, ie considering the potential losses of all customs duties from which Ukrainians were de jure exempted from "zero" customs clearance,inadmissible. The number of imported cars and their model range is such only because taxes did not have to be paid. Otherwise, customs duties, and especially excise tax, made their import economically unprofitable.
Simply put, Ukrainians would not have brought so many cars of such brands, models and characteristics if there was no "zero" customs clearance, says Levko Prokipchuk, former head of Lviv Customsand an expert on the practical application of customs legislation of the Association of Professional Customs Intermediaries. "Due to the shortage and rise in price of used cars abroad, imports would be critically low. Given the intensification and development of related areas, namely service stations, the sale of spare parts, related services, increased mobility and economic activity of the population, it is unknown whether total budget losses exist at all. — says the expert.
The second argument is the pressure on the exchange rate and the negative balance of payments. It is as if Ukrainians are buying and exporting foreign currency en masse to buy cars. However, the objective reality is that they buy these cars for money "from under the mattress", says Volodymyr Dubrovsky, a senior economist at the Case Ukraine think tank.
"These funds have long been exchanged for currency. For some reason, almost 600,000 imported cars during 2021 did not have a significant impact on the balance of payments. The total value of cars brought under "zero" customs clearance is 0.6 billion euros. Even if these funds were completely converted into car imports, which is not the case, the impact would be inconspicuous against the background of other factors, " said the expert.
At the same time, over 3 billion euros were exported from Ukraine during the two months of the war. This was facilitated by the actions of the NBU, when the regulator for a certain period lifted restrictions on the export of cash currency. It is obvious that three times the amount of exported cash had a greater negative impact on both the balance of payments and the exchange rate. However, for some reason, motorists and people who want to buy cheap cars are again considered "class" enemies, says Stanislav Buchatsky, head of the Institute of Car Research.
"Here, perhaps, the issue is more ideological and ideological. Will we finally be able to get rid of Soviet prejudices and recognize that cars are not a luxury, but a common thing? For some reason, there is no such noise around the import of iPhones, which often cost the same as a used car from abroad, ” the expert said.
On the other hand, there are many more arguments, if not for maintaining "zero" customs clearance, then for global reform of the car import tax system from abroad. They are described in detail in the analytical study "Ukrainian car market: the history of problems and how to solve them." Here are the main ones.
Why the customs clearance system needs to be changed
- Unfulfilled will of the people. Back in 2015, Ukrainians expressed their position: they are in favor of abolishing taxes on car imports. Two "car" petitions were among the first in history to garner the required 25,000 votes. Another was a petition for gun ownership. Today they decided to legalize weapons. "Zero" customs clearance was also approved as a result of the war. Is now a good time to turn everything around?
- Ukrainians do not have enough cars. Itʼs simple: 232 cars per 1,000 people against 600+ in the European Union. One of the lowest levels in Europe. We need to import another 14 million cars to reach the European average. This may take decades.
- The greatest need exists for affordable cars. Sales and import statistics confirm that most Ukrainians buy cars worth up to $ 10,000. In the top sales — popular cars of affordable price segment and no luxury cars.
- The market needs to be rejuvenated. The average age of cars in the domestic market in 2021 was 14.8 years. More than 8% of all cars were older than 1996, ie over 26 years old. Ukrainians do not have much money to buy a car, and there are no available programs to finance new cars. Therefore, the fleet is mainly replenished with used cars from abroad, whose average age in 2021 was 11.9 years. The bulk of cars imported from abroad are not older than 2008. Which also qualitatively improves the fleet, replacing old models of Soviet and Russian production with newer, European cars.
- Market restrictions are the cause of "schemes". The more restrictions, the more machinations — proven in practice. The influx of uncustomed "Eurobills", "aggregate customs clearance" due to fictitious "body replacement", interruption of VIN codes, conversion of trucks into cars, mass underestimation of customs value and other "schemes" have always been the result of significant legal restrictions on official car imports.
- Lack of customs duties reduces corruption. Given that the amount of customs duties directly depends on the customs value of the car, which is determined by customs, having discretion in the application of methods of determining this value, in fact makes it possible to obtain undue benefits for "agreeing" the desired figure. The difference in customs value can reach up to 40%. There are no direct taxes — there is no need to "agree" on something.
- The old taxation system contradicts EU law. Excise tax exists only in one EU country — Poland, where it is a maximum of 18.6% of the value. Taxes on car imports, which increase with the age of the car, rather than decrease, contradict the generally accepted rules of the European Union. What are the relevant decisions of the European Court of Justice in cases against Hungary, Poland and Portugal. Ukraine moving towards the EU is obliged to harmonize its legislation with the European one.
- There will be no invasion of old cars. First, Euro environmental standards apply in the EU exclusively to the manufacture and sale of new cars. There are no restrictions on the import of used cars according to environmental standards. Second, ad sites across Europe offer very few cars for sale.
- Inspection needs to be introduced. Environmental standard or age of the car is not an indicator of its good technical condition, and defective cars abound in the domestic market. The situation can be remedied not by a ban on imports, but by a real and non-corruption mandatory technical inspection.
- We must not forget about other types of technology. Buses, trucks and special equipment are needed to rebuild Ukraine. These areas also need liberalization and reforms, as such transport is outdated and insufficient.
How can it look practical?
Proposal 1. It is necessary to reform not only the import of cars. It is advisable to comprehensively reform the import of all types of vehicles, and these are the codes of commodity items in accordance with UKT FEA 8701, 8702, 8703, 8704, 8705, 8711, 8716.
Proposal 2. Import and sale of cars — the same area of business as other types of trade. The inability to officially import cars, as provided by "zero" customs clearance, forces companies to work in the shadows, ie informally providing services, and without paying any taxes. Demand for the services of intermediary companies is high, primarily due to the complexity of the procedure of selection, purchase, delivery and customs clearance of the vehicle, and requires expert competence in this area. In 2021, 44.6% of used vehicles (252.8 thousand vehicles) were imported by legal entities. It is advisable to provide equal conditions for imports for legal entities and individuals, giving the opportunity to officially trade in imported vehicles to market participants, paying income taxes.
Proposal 3. The introduction of "zero" customs clearance, which is tied to martial law, was a mistake from the beginning. A clear calendar date would allow individuals to plan their purchases and plan their activities. Uncertainty, on the other hand, created artificial excitement and put people in an unequal position, as many conscripts are temporarily restricted in their right to cross the state border due to general mobilization or serve in the Armed Forces. And also — restrains the decline in market prices and encourages attempts to resell these cars in the future, because many citizens hope to sell cars after the "preferential" customs clearance at the "full" market price. Solve these problems by introducing a liberal mechanism for taxing the import of vehicles on a permanent basis, common to all categories of society.
Suggestion 4. A car should not be a luxury in a civilized European country. It is necessary to completely exclude all types of vehicles from the list of excisable goods forever, ie to abolish the excise tax on cars.
Proposal 5. Harmonization of customs legislation of Ukraine and the European Union also provides for a single approach to the taxation of imports of vehicles from third countries, and a single customs area within the EU. Thus, in order to harmonize Ukrainian legislation in the future, the following conditions for importing vehicles should be introduced. When importing vehicles originating from the EU: duty — 0%; VAT — 20% before joining the EU and 0% after. When importing vehicles from third countries: duty — 10%; VAT — 20%.
Proposal 6. Align with EU legislation the provisions on Euro environmental standards, namely the introduction of these standards only for imports and the manufacture of new vehicles, instead of introducing regular roadworthiness tests for all types of vehicles. In accordance with European practice, the certification of used cars during import should be replaced by an initial technical inspection.
Proposal 7. Since each vehicle is inspected and cleared at the customs terminal, and later an expert inspection at the Service Centers of the Ministry of Internal Affairs, it makes no sense to duplicate these procedures at the checkpoint. Simplification of customs formalities should be implemented. Namely, reducing the number of documents required for admission to the customs territory of Ukraine for further entry into the internal customs clearance department, and reducing the procedures that are required to perform customs officers. Thus, registration of one car at the checkpoint can take at least 40 minutes, but up to 10 minutes. Thus, the time of passing vehicles at checkpoints going to Ukraine for release into free circulation can be reduced by four times.
Proposal 8. Simplified submission of a preliminary customs declaration, the registration of which should be introduced through the state service "Action", which was previously announced. It is also necessary to implement the independent submission of the MD-1 customs declaration for the release of vehicles for free circulation not only through the online service "Single Window" of the State Customs Service, but also the mentioned application. The unique VIN-code of the car allows to automate filling of the electronic document, to automate its giving and registration, to reduce loading on the device of the State customs service and to optimize expenses of the budget for payment of work of officials of customs.
The full text of the analytical study of the history of problems in the Ukrainian car market and ways to solve them can be read at the link .