Fair Price Initiative – Why It Is Important to Talk about Taxes?

Dmytro Boiarchuk, Executive Director of CASE Ukraine
 

Little do the Ukrainians know about their taxes: how much does one personally pay to the treasury; who, citizens or oligarchs, fills the budget; what are the key line items in the expanded budget and so on. The low level of financial literacy of the Ukrainians has been confirmed by our regular sociological observations, the latest of them showing 88.5% Ukrainians have no clue about them giving away up to a half of their income to the State. With each shop receipt clearly stating the 20% VAT added to the product price everything would seem clear and transparent. However, it is something obvious, which sits in plain sight, that often poses the most challenge: a mere 19.8% respondents know of a fiscal mark-up added to the product prices. It is no surprise then that 61.7% fellow citizens have no idea of the most of the national budget being made with those minute contributions of millions of customers.

The lack of understanding of who pays for what makes a nice premise for manipulations, which is used both by politicians/officials forgetful of whose money they manage and unscrupulous business persons who use schemes to keep the VAT, excise or import tax amounts paid by customers for themselves rather than transfer these taxes to the treasury.

In 2018, our CASE Ukraine Analytical Centre launched in the scope of its Price of the State Project a tax awareness-raising campaign, the first in the history of the country. In the nutshell, we used a range of communication channels, from the Facebook to TV, to tell the public how much do they pay to the State, how much do public services cost to tax payers and how in reality everyone, including retirees, keeps on paying taxes.

We involved in the campaign a number of retail chains that understand and support the importance of raising financial literacy. These chains let us use their sales areas to promote our educational materials. One of the businesses who joined the campaign was a petrol station chain; the fiscal mark-up (VAT, import tax, excise duty) in the fuel cost reaches a staggering 40%! In order to bring the attention of Ukrainians to fuel taxes, we suggested the petrol station chain somehow highlight the total amount transferred to the State in fiscal receipts. The idea did not fly that time, the company citing the cost of re-programming their tills.

In our view, at that time businesses could not comprehend the importance of bringing up the information about taxes paid by their customers. From their perspective, the topic had not practical sense and looked rather another yet abstract attempt by civic activists.

Three years later the fuel market had another yet price hike that sent ripples of displeasure among the voters. Politicians, looking for ways to evade the bad rap, began the hunt for cartel agreements among petrol station companies. The ‘hunt’ led to price regulation on the fuel market to defuse tensions. In that crisis situation, the petrol station chain that had participated in our education campaign remembered our idea and started showing in a more accessible manner in their receipts how the fiscal mark-up makes for the most of fuel payments. The idea got traction with other petrol stations.

A simple mention of the total tax amounts paid by the customers in sales receipts exploded the media environment, social media users posting their receipts and sharing the surprising amounts they have paid when filling their tanks. It was picked by the media and prompted an avalanche of reports and segments on taxes at points of sale.

Government officials prefer Ukrainians think they pay no taxes. Government officials intentionally use their public communication opportunities during television shows, at press conferences, via press releases to underscore it is mostly businesses, oligarchs, public enterprises who pay taxes and fill the nation’s coffers. First of all, this makes so much easier the task of squeezing more money from honest businesses with tax hikes and various penalties – because ‘it is businesses, not ordinary folks, who have to pay taxes’ (this despite all costs then going into the prices for the end consumer). Secondly, a voter with no knowledge of how much he has to dole and why is much less fussy about the quality of services provided by the State.

So, exactly in order to drive the idea of every one being the tax payer into the head of every Ukrainian, we created this Fair Price education initiative aimed at drawing customers’ attention to the fact that product prices include indirect taxes (e. g., VAT) and that by buying products or services people fill in the budget. The story is not free from one ‘but’ though: not every seller includes indirect taxes (VAT, import tax, excise duty) in the price for his product and thus transfers these to the budget at all (or only partially). Therefore, CASE Ukraine will only engage in the Fair Price exercise with those businesses and entrepreneurs able to prove their integrity.

The Fair Price education campaign has two components. The first one provides easy for citizens’ understanding clarifications as to the tax amounts they pay, when they do it and where do the money go. For this, we will use all accessible communication tools and channels from TikTok and YouTube to dedicated educational and awareness materials placed at points of sale. Our Analytical Centre has more than a decade of successful experience in that. The second component will offer positive highlights of ‘white’ businesses shaping strong image of entrepreneurs with integrity. For this, the initiative participants will be granted the Fair Price decoration. We will use information materials to underscore it time and again the Fair Price decoration is a sign of responsible business-making when the owner fully observes the withholding agent obligations and transfers all indirect taxes received from his customers to the treasury thus financing, together with his customers, Ukrainian medics, military servicemen, teachers etc.

We want the economic knowledge obtained by rank-and-file Ukrainians to help the fair ‘white’ businesspersons stand out from the rest of the market. Our aim is to see that the very Fair Price education campaign evokes positive emotions among the citizens about fair and integrous business tagged with Fair Price decorations.

At this time, we have the criteria for the four sectors – the fuel, the home appliances, the strong spirits, and the pharmaceutical ones – already designed. Criteria for other markets will be designed accordingly throughout the initiative progress.

Businesses willing to participate in the Fair Price will have to fill in the self-evaluation questionnaire, which will serve the basis for candidate integrity assessment.

Going back to our sociology, we expect that over time more than 50% of our citizens will be able to clearly answer the question of how much do they pay as taxes to the budget, and integrous businesses will receive better, vs. other market participants, recognition and respect from the public.