Many developed countries require declaring your income. The procedure remains essentially the same: within a specific period, citizens are required to submit the statements of their income, expenses and other tax information to a relevant state agency.
Each procedure, however, differs from country to country. The persons declaring their income, size of information specified, avoidance penalties – any information is highly situational.
Tax returns in the United States
For example, in the United States, any entity/person classified as a tax resident shall submit a tax return. First of all, it applies to those employed in the US.
In addition, tax residents are holders of a working visa and, in most cases, those incapable of working but entitled to non-labor revenue (such as persons with disabilities): alimony, dividends, rent, royalties.
The Internal Revenue Service is responsible for processing the revenues of most taxpayers. The General Accounting Office is authorized to process the revenues of public servants. It also keeps records of the revenues of those companies whose representatives are lobbying their interests in public authorities.
At the same time, not all residents are bound to submit tax returns. These may be companies with zero annual income and citizens, whose annual income is lower than the IRS minimum.
A tax return must contain all revenues and their source. The first thing tax officers examine is the origin of taxpayer’s funds and if the taxes were paid on those. Tax officers care not about the number of apartments, cars, yachts, watches and other items of value. Only the income-generating assets.
In addition to the cash and borrowed funds, politicians bear a responsibility to specify their shares in business entities, if any, and liabilities before lending organizations.
If within a year they have conducted transactions of sales and purchase of shares, and if the total value of such shares exceeds US$1,000, – such information should be specified as well. The main focus is on information about private collections (paintings, automobiles, etc.). To that note, the closest relatives (spouses, children) should also make such information available.
There is one more interesting fact about income declaration in the USA. For citizens, this procedure is an opportunity to assess their financial position and tax history in general.
Americans, same as Ukrainians, pay taxes during the year. An annual declaration allows seeing the entire picture, calculating if all payments have been made or if there was an excess paid and understanding if all tax deduction opportunities have been used (for example, for expenses incurred on training, treatment, education, etc.).
In the event of excess payments, the state undertakes to return the excess paid. That said, the revenue service is usually not so over-particular when it comes to inspection. An extra comma or wrong date is not always treated as a taxpayer’s attempt to understate the tax result. Unlike in Ukraine.
And what about us? How are things going in our country?
Those who are relatively knowledgeable about the declaration of income in Ukraine may notice that the procedure in our country is quite different from the United States.
First, only specific categories of citizens submit tax returns in Ukraine. These are public figures, public servants, and anti-corruption officers.
Such an obligation rests with those receiving a certain type of income such as one received from abroad (including transfers from relatives working abroad), revenues from alienated shares, and securities. Moreover, it is incumbent on those involved in a sole professional activity (attorneys, doctors, lawyers, etc.).
Other factors may also create a necessity to submit an annual tax return. Such as an unexpected inheritance from distant relatives.
A tax return has the same format for all categories of taxpayers, unlike the ones for politicians and public servants. Their control is the responsibility of the National Agency on Corruption Prevention.
Such documents are filled out and sent in an electronic form only (as per amendments to the legislation).
The electronic tax return includes 16 sections. It is mandatory to specify accurate information about the revenues and expenses, immovable property, including ongoing construction (if any), automobiles and other vehicles available, securities, monetary assets and bank accounts, credits and loans, luxury items, private collections, rare valuables.
“Civic” tax returns in Ukraine are subject to meticulous examination down to every comma and full-stop. Even a small error can become an excuse for tax claims. Unfortunately, the submission procedure is often delayed and creates many problems for those Ukrainians with poor awareness when it comes to preparing tax returns.
What is also important is that tax returns of public figures and public servants in Ukraine are in public domain, unlike the United States. On one hand, such a measure achieves maximum transparency. On the other hand, this data is used to manipulate public opinion.
Both in Ukraine and the USA, a failure to submit a document results in a penalty for late submission. In Ukraine, some cases entail a criminal responsibility.
A penalty also applies if the examination reveals errors. Which makes the Ukrainian case rather ambiguous. Our tax service cares not if the errors were intentional or accidental. A taxpayer will have to pay the penalty anyway.