Family Declaration: First Initiatives from Deputies

There is no law on universal declaration, but MPs are actively working on it. The Verkhovna Rada’s work plan for 2022 in this direction included the following steps: 1) enshrining at the legislative level the organizational principles of household functioning (paragraph 438), 2) introducing the declaration of household income and expenses (paragraph 439), 3) introducing family taxation (taxation of households), and 4) ensuring a gradual transition to general income declaration (paragraph 367). This article discusses Bill No. 8143, which implements the first two steps.

The concept of a “household” in Ukraine, as well as in the EU, was introduced for statistical purposes and refers to a group of individuals (or a single person) who live together in the same premises, provide for themselves with all the necessary essentials for living, run a common household, and fully or partially pool their resources and spend them collectively. These individuals may or may not be in family relationships with each other. According to data from the State Statistics Service, there were approximately 14.5 million households in Ukraine in 2021. The proportion of households that include individuals not related by family bonds is 0.22%. However, not all households fit the definition of a “family” as provided by the Family Code since a family typically includes spouses and children who do not live together with their husband/wife or parents.

The law project also includes a definition of “institutional households.” These households consist of individuals who permanently or for an extended period reside in specialized social or medical institutions or military units. A representative of an institutional household is the head or authorized body of the respective institution. However, it appears that the rest of the draft law pertains only to “regular” households. It would indeed be unusual, for example, if the head physician of a hospital were to file a tax declaration for patients who have been in the hospital for an extended period. It would be equally odd if patients started providing domestic services on behalf of the hospital.

Draft Law No. 8143, “On the Freedom of Entrepreneurial (Economic) Activity of Households,” proposes to include households as subjects of economic activity alongside businesses (legal entities) and individual entrepreneurs. 

Suppose a household wishes to engage in entrepreneurial activity without registering as an individual entrepreneur (provided only household members are involved in the activity and the income does not exceed UAH 8 million per year). In that case, it must file an annual tax declaration. Types of activities that can be conducted without registration include individual services (hairdressers, cosmetologists, tutors, caregivers, etc.), domestic services (cleaning, laundry, minor repairs, etc.), retail trade from stalls and markets, passenger and cargo transportation services, legal consultations, and other services that can be provided without licenses. The bill needs to clarify what tax rates will be applied to such activities. What sanctions will be imposed for failure to submit declarations is also unclear. Currently, people who, for example, rent out apartments or provide personal services are required to submit declarations and pay taxes but often do not do so.

The same tax declaration will be required for obtaining social assistance (assistance in difficult life circumstances), social benefits, and care or tax exemptions. To do this, an authorized household representative must maintain a simplified accounting of income and expenses (using a form to be developed by the Cabinet of Ministers) and may also receive income information from the tax authorities about the household members’ income and the PIT they have paid. Currently, social assistance is provided based on the total family income. (The Law on State Social Assistance to Low-Income Families and the Procedure for granting and paying such aid since 2003 require that an authorized representative compile and submit the declaration of the family’s income and property. There is also a procedure for calculating the total family income for providing all types of state social assistance, including calculating housing subsidies). Although the bill lists household income and expenses (see the box), it is unclear which specific sources of income and types of spending will be included in the declaration, as the form for maintaining a simplified accounting of income and expenses is to be developed by the Cabinet of Ministers.

Additionally, the bill does not clarify (and current legislation does not explain) how a household will choose or change its authorized representative. Previously, executive bodies of rural and township councils could designate an authorized person to receive documents. However, it is crucial to address this issue comprehensively to prevent situations where the authorized person appoints themselves without the consent of other household members, as this would give them control over their incomes, potentially contributing to domestic violence. (Before the onset of Russia’s full-scale invasion of Ukraine, approximately 1.8 million women suffered from domestic violence each year. In 2020-2021, the number of reported cases on this matter increased by 56%.)

For example, a mother can currently receive social assistance regardless of her relationship with the child’s father. If the bill is passed, the father could appoint himself as the “authorized representative” and consequently receive assistance. 

Additionally, if the event of the bill’s approval, households will be entitled to state support, including the provision of free land plots or premises. However, questions remain about who will use these plots or premises and who will ensure they are used specifically for business purposes. The bill needs to provide answers to these questions. 

Various complexities and questions may arise during the practical implementation of the bill. For instance, if a child helps their parents sell goods at a market but lives separately, would they be considered part of the household according to this law? If not, which legislation would apply in such a case? Another example could involve a household receiving social assistance based on a declaration, but one of its members has undisclosed income from informal employment. Would the authorized representative be held responsible for providing inaccurate information in the declaration, and would the household lose its social assistance in this case?

In short, while the bill contains several progressive ideas, such as defining households as economic units and providing social services based on income and expenses, many of its provisions are unclear, contradict current legislation, or seem “disconnected” from it. 

Therefore, it is necessary to thoroughly refine the bill (including establishing procedures for selecting and changing authorized representatives, sanctions for non-submission of declarations, and more) and consider amendments to the Tax Code and laws governing the provision of various types of social assistance and benefits. 

With the support of