Draft model design for an e-governance system integration, supporting combation with smugglers and counterfeited products.

1. Combating Smuggling and Illicit Trade:
An Option to Resolve the Issue
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prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

2. Estimated volumes of smuggling
According to expert estimates, the
share of goods illegally imported into
Ukraine ("shadow imports” may
equal up to 10-15% of the volume of
official imports *, and for the certain
types of goods (electronics,
automotive supplies, consumer
goods, etc.) this rate may reach up
to 50%.
* - http://kinto.com/files/articles/304/88_3.pdf
** - http://ukrstat.org/uk/druk/katalog/kat_u/publ10_u.htm
84658.1 mln
USD
12698.715 mln
USD
Ratio of official and “grey” imports
Volume of official imports**, 2012 г.
Assumed volume of "grey" imports, 2012 г.
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prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

3. Effectiveness of traditional methods of
combating "shadow" import
In 2012 the customs authorities have
initiated proceedings in 20,035 cases for
violation of customs rules, where the total
value of the illicit goods is 2.58 billion
hrivnya* (or approximately 322.5 million
USD).
This represents approximately 2.6% of the
estimated amount of the "shadow imports".
Thus, it appears that traditional
enforcement techniques lose their
effectiveness against "shadow imports".
Meanwhile, a noticeable improvement in
this area would require a "qualitative" leap.
322.5 mln
USD
12376.22 mln
USD
Ratio of identified customs offences
to the estimated volume of “shadow
imports”
Number of initiated proceedings, 2012
Estimated volume of unidentified "shadow import", 2012
* - http://minrd.gov.ua/diyalnist-/borotba-z-ekonomichnoyu-zlochinnistyu-
ta/informatsiyna-dovidka-schodo-rezultati/
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prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

4. New approach of countering the illicit imports /
production of goods
The main purpose of illegal import / production of
goods is their introduction to legal commerce.
However, the state’s ability to control introduction of
smuggled/counterfeited goods into trade turnover
appears to be difficult, primarily because of the inability
to identify the product at the domestic market: whether
it was imported / manufactured legally or with evasion
from customs / tax control.
The solution to this problem is to create a significant
barrier to counterfeited/smuggled goods: the criminals
would not be physically able to introduce illegally
imported/manufactured goods at the domestic market.
This would destroy the economic benefit of the
"shadow import", or "underground" production in any
significant scale.
Import of goods
with concealment
from customs
control
Illicit production
Sale of goods (e.g., supported
by forged or false documents)
and consequently, sale to end-
consumers
© Robert Zeldy 2013 All rights reserved. Commercial use, reproduction or distribution of the contents without the reference to the author is
prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

5. Monitoring introduction of goods in trade
turnover: the Unified Tax e-Invoice
Any transaction with the goods is always accompanied
by a settlement document - either a receipt or other
form of invoice.
Considering this, experience of China* (including
Taiwan**), and other countries in South-East Asia***
may be of certain interest.
In particular, Taiwan uses a standardized form of
invoices and receipts for VAT control purposes (also
issued electronically). This practice, which is currently
being implemented also by China, facilitates the
administration of recently introduced VAT
• - http://www.chinatax.gov.cn/n6669073/n6669118/9397406.html
** - http://www.futuregov.asia/articles/2010/dec/20/taiwan-govt-make-uniform-tax-
invoices-electronic/
*** - http://www.futuregov.asia/articles/2011/mar/17/philippines-see-unified-invoice-
system/
Customs Declaration
applicable for imports of goods
Service Acceptance Statements
only for provision of services
Invoice or receipt
any taxable transaction
© Robert Zeldy 2013 All rights reserved. Commercial use, reproduction or distribution of the contents without the reference to the author is
prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

6. Monitoring introduction of goods in trade
turnover: Ukrainian background
As of today, Ukraine is more than capable to implement a
national system of control over the introduction of goods
into trade turnover.
Various IT systems of the state authorities already cover
large segments of the market, for example:
 Customs databases contain information about
trafficking of goods through the customs border (via
e-declaration techniques)
 The legal manufacturer/import of certain excisable
goods (e.g., tobacco and alcoholic beverages) could
be tracked via the license number and excise stamps
purchased (information also available in IT systems
of tax authorities)
 Database of VAT invoices contains information about
all the VATable transactions worth over UAH 10 000
(via electronic registration of VAT invoices)
 In the near future, electronic cash receipts will be
available, covering the sale of goods to end-
consumers
• -
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prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

7. Monitoring introduction of goods in trade
turnover: difficulties of implementation
Despite significant progress in this area, the
implementation of a national control system for
monitoring entry of goods in the trade turnover still
faces system constraints:
► Low interaction levels between different IT
systems (i.e., tax and customs databases)
► Low automatization of data exchange
► Different approaches to the coverage of taxpayers
and logged operations, and as a consequence -
difficulties in data reconciliation
• -
VAT invoice register
VAT payers
Electronic
register of cash
receipts
stores, catering and public
services
Customs
databases
legal entities and individuals
regardless of taxpayer status
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prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

8. Unified Tax e-Invoice (UTI): the concept
The concept of the Unified Tax e-Invoice being developed
by a number of governments*, would serve the needs for
trade facilitation and at the same time improve combating
the "shadow economy“ **.
Certain prerequisites for the implementation of the UTI:
 Required for any taxable transaction (subject to
certain exceptions in the form of value threshold or
non-critical goods)
 Mandatory for all categories of taxpayers (including
non-VAT taxpayers)
 Contains information about all types of applicable
taxes (VAT/GST, excise)
 To be provided by electronic means to the revenue
authorities
• - http://ec.europa.eu/internal_market/payments/einvoicing/
** - http://ec.europa.eu/taxation_customs/taxation/vat/traders/invoicing_rules/index_en.htm
Import/production of goods
UTI:
reference to
the item number
in the import declaration
Distributor
UTI:
reference to the item
number in
importer’s/manufacturer’s
UTI
Store
Electronic cash receipt:
reference to item number
in distributor’s UTI
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prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.

9. Unified Tax e-Invoice: benefits
The state:
 Minimizing the possibility of introduction of
smuggled or counterfeited products (consumer
goods, alcohol beverages, tobacco)into a trade
turnover
 Automation of data exchange between different IT
systems of revenue authorities
 Facilitation of returns used for tax and trade
purposes
 Improving the country's position in international
ratings due to completely electronic worklow in
tax, customs and trade
• -
The business:
 Reducing the number of required documents
(eliminating the need for the separate VAT
invoice)
 Reduction of costs by eliminating the need to use
paper forms for accounting and tax purposes
 Reduction of unfair competition (due to enhanced
enforcement of intellectual property rights)
 Reducing administrative burden (by expanding
the base for electronics audits)
© Robert Zeldy 2013 All rights reserved. Commercial use, reproduction or distribution of the contents without the reference to the author is
prohibited. No part of this presentation may be modified or adapted without express and prior written consent of the author.