The government will ban cash settlements of more than UAH 18,300 per day

The government wants to leave the people the possibility of paying the equivalent of 1,000 euro in cash

Photo: Reuters

The Cabinet of Ministers intends to convert Ukrainians to non-cash settlements, which accounted for only 17% of individual transactions in 2013. In the bill on tax reform submitted for review by the parliament, the government is proposing to introduce amendments to the Civil Code, thereby depriving the National Bank of Ukraine of the possibility of setting limitation sums of cash settlements by individuals, legal entities and individual entrepreneurs.

Instead, this restriction will be provided for by the code itself. The Cabinet proposes setting this limit for settlements between people on the one side and companies or entrepreneurs on the other side at the level of 15 minimum wages over the course of one day. Specifically, this amounts to UAH 18,270 based on the minimum wage set by the national budget for 2014. The government proposes similar limitations in size for cash settlements of companies between themselves and individuals between themselves according to buy-sell contracts, which are subject to certification by a notary public. If this initiative is approved by the Verkhovna Rada the maximum sum of cash settlements with individuals, which since September 2013 was set by the NBU at UAH 150,000, will be lowered by 8 times, thus reaching the European indicators. In Italy, Spain, France and Germany the permissible sum of cash settlements fluctuates from EUR 1,000 to EUR 5,000.

Public appearance

This given initiative appeared within the framework of the government’s fight against the shadow market in an attempt to increase revenues to the national budget, noted Director of the International Bleyzer Foundation Oleh Ustenko.

The limit set a year ago on cash settlement in business deals with individuals turned out to be effective. As a result, the volume of non-cash settlements of individuals for goods and services increased by nearly 2.4 times in the period January-April 2014 compared to the same period last year, the NBU calculated. For comparison, over the entire year 2013 the volume of non-cash settlements grew by 74% to UAH 159.1 bn. For this reason, the government decided to go further along the path of toughening the requirements to cash settlements.

Back in August Ihor Bilous, Head of the State Fiscal Service, which since July has been in charge of overseeing the procedure of cash settlements for goods and services, announced that he expected the NBU to introduce measures to reduce the volume of cash turnover starting from January 1, 2015, including through lowering the maximum sum of settlements in cash form.

Head of the SFS said the reduction in the turnover of cash is one of the instruments that will be help in the fight against wages being paid under the table, the volume of which is estimated at UAH 20-50 bn per month. For comparison, the government estimates the labor payroll fund in 2014 at UAH 486.6 bn. This means that of all wages paid in Ukraine, 33-50% remain in the shadows. On the whole, according to assessments of the Ministry of Economic Development and Trade, the size of Ukraine’s shadow market which is serviced mainly via cash settlements reaches 30% of GDP or more than UAH 400 bn.

On its part, the NBU also supports the further limitation of cash settlements, though not as radical as that proposed by the Cabinet of Ministers. In June the central bank put up for discussion a draft resolution in which it proposed to lower the limit of cash settlements to UAH 100,000. “Lowering the limitation of cash settlements by individuals from UAH 150,000 to UAH 100,000 is aimed at gradual legalization of incomes and will as a result foster the reduction of the shadow economy of Ukraine. The limitation will affect only major purchases and will not create an obstacle to citizens settling in cash,” the NBU substantiated its initiative, which by the way remains on paper only.

Shock therapy

While earlier experts described the limitation on cash settlements of UAH 100,000-150,000 as too high in order to conduct a significant de-shadowing of the economy, they approve the limit of UAH 18,300 proposed by the Cabinet of Ministers, though calling it low. “This is a shockingly quick measure that will lead to limitations of the European level.” says Ustenko.

The advantage of the new limit is that it will become rather awkward to dodge this norm by fragmenting payments for major purchases. Also, Senior Analyst at the International Centre for Policy Studies Oleksandr Zholud noted that one of its pluses is that now not only expensive purchases – real estate and automobiles, but also smaller goods such as large household appliances, expensive electronic goods and tourism services will be processed in non-cash form.

Naturally, Zholud feels that a sharp toughening of the limit will not be highly effective seeing as new schemes will appear to circumvent the limit. The fact is that now the tax bodies will receive information even on smaller purchases by the population.