FINANCING OF THE STATE TAX SERVICE AND THE STATE CUSTOMS SERVICE OF UKRAINE: TRENDS, CHALLENGES AND PROSPECTS

Abstract

The article discusses the recent changes in the funding of the State Tax Service (STS) and the State Customs Service (SCS) of Ukraine. It analyzes the expenses related to the administration of tax and customs authorities, considering the reorganization processes of these structures and their impact on operational efficiency. The primary directions for modernizing the STS and SCS within the context of the National Revenue Strategy for 2024-2030 are described, including the implementation of IT solutions and other reform measures. Introduction. The cost of tax administration is a crucial aspect of state policy, as it determines the net revenue the state ultimately receives from taxes and fees. Although the simplification of tax administration for businesses has been a longstanding issue, it remains necessary. At the same time, state fiscal authorities, namely the State Tax Service and the State Customs Service of Ukraine, must be adequately resourced to ensure compliance with tax laws by all entities. This article examines how the reform of the STS and SCS is being conducted, whether it will enhance their capacity, and what the current costs of tax administration in Ukraine are. The STS and SCS are key institutions implementing Ukraine’s tax and customs policies, playing a significant role in the business sector. In 2023, these agencies facilitated the administration of 12 trillion UAH in tax revenues, covering 57% of defense-related expenditures. Purpose. The purpose of this article is to analyze the changes in the funding and structure of Ukraine’s STS and SCS in recent years and to assess their impact on the institutional capacity of these bodies. Methods. The study employs a comprehensive analysis of the financial and operational data related to the STS and SCS, reviewing historical developments, organizational reforms, and budgetary allocations. Comparative analysis with other countries’ tax and customs systems, particularly in the EU and the US, is used to highlight structural and funding differences. Results. The study reveals that the STS and SCS have undergone numerous transformations since their establishment. The frequent restructuring, largely driven by political decisions, has often lacked a clear rationale and an assessment of its consequences. These frequent changes have led to uncertainty for staff regarding their roles and responsibilities, negatively affecting motivation. The staff numbers in both agencies have significantly decreased in recent years, partly due to the digitalization process. Additionally, financial constraints have affected the ability of these agencies to fill vacancies, leading to an increased workload on current employees and decreased institutional capacity. The research also highlights that, despite recent funding being lower than planned, the operational efficiency of the agencies is expected to improve as part of the National Revenue Strategy for 2024-2030. The strategy emphasizes digital transformation, professional development, and improvements in tax and customs administration. However, the budget allocation for the STS and SCS has been challenged by the need to redirect funds to defense and security, resulting in lower financing for capital expenditures and infrastructure investments. Conclusion. The role of the STS and SCS in securing Ukraine’s defense budget is growing as the state relies on internal revenues. However, the frequent reforms have disrupted the functioning of these agencies, reducing their effectiveness. The National Revenue Strategy aims to address these challenges through digitalization and enhancing the professional capabilities of staff. If implemented effectively, it is expected to build trust between taxpayers and the authorities, thereby contributing to more efficient revenue collection and administration.