Excise tax on electricity: results of implementation of the recommendations of the Accounting Chamber

Control over licenses for electricity production has been strengthened, a register of licenses has been formed, and a methodology for forecasting excise tax revenues on imported electricity has been introduced – These and other changes were implemented due to the implementation of recommendations provided based on the results of the audit of the effectiveness of planning and control over the completeness of the calculation and timeliness of the receipt of excise tax on electricity to the State Budget of Ukraine.

During this audit, the specialists of the Accounting Chamber examined the state of implementation by state bodies in 2018-2020 of their powers to control the production, import, export, and sale of electricity, ensuring the completeness of the calculation and timeliness of the payment of excise tax on these products, as well as the stability and predictability of this source of revenue to the state budget.

Let us recall that during the specified period, the reform of the electricity market continued: the transition to a liberalized market model, which directly affected the procedure for administration and the volume of excise tax revenues from electricity.

During the period studied by the auditors, the state budget received about UAH 13 billion of such tax, however, each year these revenues decreased significantly and there was a sharp increase in the corresponding tax debt: from UAH 96.8 thousand as of January 1, 2018 to UAH 37.6 million as of January 1, 2021 (almost 389 times).

The auditors identified a number of systemic problems in the new electricity market that created opportunities for manipulation of prices and volumes of purchase/sale of electricity. This led, in particular, to a decrease in excise tax revenues to the state budget.

 So, it was established that the forecasting of excise tax revenues from electricity for 2018-2020 by the Ministry of Finance was carried out on the basis of outdated methodology, which negatively affected the validity of these calculations.

- In accordance with the recommendations of the Accounting Chamber, the Ministry of Finance created the classification subcode 14031400 «Electric energy» in the existing and previously existing budget revenue classification code 14030000 «Excise tax on excisable goods (products) imported into the customs territory of Ukraine», which helped to more accurately track the excise tax on imported electricity.

- In addition, the Ministry of Finance, by order dated 28.12.2023  No. 734 introduced a methodology for forecasting excise tax revenues from electricity imported into the customs territory of Ukraine.

The National Commission for State Regulation in the Spheres of Energy and Utilities (NCRECU) did not ensure full compliance with the requirements of regulatory legal acts on licensing and taxation of electricity with excise tax during the audit period.

- In accordance with the recommendations of the Accounting Chamber, the NCRECU established regular information to regulatory authorities at the location of legal entities about the status of their licenses for the right to conduct economic activities in the production of electricity, and also established information to the State Tax Service of Ukraine (STS)  about such licenses, which significantly improved control in this area.

- Among the important changes is the proper formation and posting on the official website of the NCRECU License Register. At the same time, until the end of martial law in order to secure state registers and the information contained in them, access to the specified register is limited.

- In accordance with the recommendations of the Accounting Chamber, in May 2024, the National Commission for the Regulation of Economic and Social Development of Ukraine established an internal audit department.

The State Tax Service also began to implement automation of the process of conducting desk (electronic) audits of tax reporting.

In total, the Accounting Chamber provided 21 recommendations to eliminate the identified shortcomings. Currently, all recommendations of the Accounting Chamber provided under this audit have been implemented, and control over their implementation has been completed.