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On September 1 next year, we will celebrate the Day of “Tax Knowledge” together with the Day of Knowledge, because the calendar year allotted to tax amnesty will run out the day earlier. There were heated and irreconcilable discussions between the adherents and opponents of the project. That does not matter now. All that matters now is what the outcome will be and what the consequences of this hitherto unknown outcome will be for the government, the economy and society.

No one, including all apologists for this idea, knows how much money our compatriots will declare in view of the results of the unprecedented in the recent history of Ukraine event. The more interesting for everyone is the expectations!

In fact, we are all experiencing a real experiment on the country and society, so experts and researchers should give advice, since everyone will get significant, as they say fact-based and empirical, material for reflection, research, discussion and posts. As a famous character from one of the cult Soviet films said: “If I were you, I would start writing a doctoral dissertation right away!”

Who cannot be envied in a year is the authorities in case of a negative result. In fact, the result of this campaign may be positive, negative or … not a one, which, in any case, can be safely called failure.

I am not sure how consciously, but the ruling party has raised the ante, which may turn into either another fanfare like an “electoral maidan” or a complete fiasco if inflated expectations fizzle out.

How do we understand this? Quite simply. In finance and taxes, unlike many other spheres of public life, everything has a monetary dimension and is estimated by one, sometimes several indicators. Here the KPI are simple and clear to everyone, so it is almost impossible “to muddy the water”. Experts agree that there are about USD 50 billion only within the country “in the hands of the population”. Another USD 200 billion are assets owned by Ukrainians in low-tax jurisdictions. In total, we have USD 250 billion in the denominator of the tax amnesty efficiency indicator.

We know the denominator. What the numerator will look like depends on many factors, including the decisions and steps that the authorities will take to implement during the time left before the amnesty ends. We hope that during this period all branches of government will work in unison and to the best of their ability to achieve positive results. We will eventually no longer be witnesses of big words where there is nothing like this.

However, according to the laws of economics, a big gain has its costs and its risks if the desired result is not achieved. Therefore, let us consider how events may develop depending on the outcome of the tax amnesty, which should be seen in at least three aspects. First of all, in the economic one, then social and, finally, political.

The Minister of Finance states quite appropriately that next year’s State budget will not take into account any revenues from the tax amnesty. The ideologists of the project show artificial indifference to the expected economic effect. Nevertheless, I am firmly convinced that each of the amnesty adherents somewhere deep inside and in their heads expects that significant capital can return to the country. If we consider the previously announced figure of the estimated value of undeclared assets of our compatriots of USD 250 billion, take into account the rate of 5% for assets located in Ukraine and 9% for assets abroad, a simple arithmetic calculation gives us USD 20.5 billion. These are the funds that the State budget will definitely need, especially since in relative terms this figure is more than half of the projected tax revenues of the State budget of Ukraine for next year. The medium-term Budget Declaration for 2022-2024 states that tax revenues in 2022 are projected to be UAH 1,064.5 billion. I think the figure of the draft budget, which will be soon published, will not differ significantly from it.

For the sake of truth, one does not need to go to extremes and exaggerate. It is clear that the above assessment is a perfect case. Experience and history show that in no country in the world similar measures ensured the legalization of all hidden wealth and capital of their citizens.

In this regard, we cannot talk about billions of dollars. It would be nice if it were billions of hryvnias of legalized assets, the chances for de-shadowing of which are also small. Notably, all those who filed declarations of civil servants from January 1, 2005 and then e-declarations are exempt from amnesty. In Ukraine, as is well known, power and the individual well-being of those who are endowed with it often go side by side. I will give only one example. Studying the prospects of wealth taxation in Ukraine, my colleagues and I examined the declarations of income and property of the People’s Deputies of the current Verkhovna Rada. It so happened that some Deputies’ declarations for past periods were in the public domain, so we were able to make comparisons over time, because the static analysis itself often says nothing. 

So, studying the dynamics of growth of assets of such officials, I was personally impressed by a People’s Deputy, who over the last 16 years, 2 of which he was not in this status, was able to turn from a person who in the mid-2000s had no wealth and income into a happy owner of property valued at more than UAH 300 million! It is clear that the level of salaries of a People’s Deputy, even of the Verkhovna Rada of Ukraine, cannot explain such remarkable transformations. Therefore, following the presumption of innocence, one should assume that the lion’s share of this wealth was earned during two years of “being a free-lancer”, when he obviously was a successful entrepreneur or investor. However, such characters are lost for the amnesty. We hope that the National Agency of Corruption Prevention (NACP) will have time to pay attention to such “successful” people someday!

The social context of the outcome of the tax amnesty may be more important than other ones, because in case of its high effectiveness, it will additionally show the government the level of trust in its actions of, especially ordinary, wealthy citizens. When the citizens believe in the prospects of the domestic economy, the stability of its financial system, the reliability and protection of their deposits, we may all witness, saying without any irony or exaggeration, a miracle. For example, pension reform is extremely important nowadays. Without going into the details of what is hotly debated today, as this is the subject of a separate conversation, experts agree on the risk of lack of public trust in the state. 

Doubt, disappointment are in the ability to pursue such a complex and important in the social aspect reform. The most important thing, in which there are well-founded fears today even among experts, is that this is not another attempt to earn political capital, but a long-term project initiated by government officials who understand the cost of mistake. I think that the success of the tax amnesty will directly contribute not only to the formation of favorable socio-economic conditions for pension and other systemic reforms, but to restoration of the trust of ordinary citizens in their success.

Finally, the political aspect of the tax amnesty is that in the event of a significant financial result, without any doubt the ruling party will have sufficient prerequisites for success and thus will receive a new credit of trust from voters who showed the high level of trust in it not by their votes, but by their own capital. On the other hand, the cost of a loss is also significant. But I’d rather not think about it!

The countdown has started, the clock is running steadily. We will not have long to wait for the result – only 357 days. As they say, all bets are off – no more bets!

Expert of the Growford Institute, Professor, Doctor of Economics Kostiantyn Shvabii for Lb.ua.