The moratorium on inspections is a broad concept used by both government officials and the media. In Ukraine, there are at least two major categories of inspections that people usually haven’t been told much about.
The first category subject to the moratorium during the quarantine is the so-called state supervision (control) of economic activities. It is identified by spheres of control and NOT by authorities. For example, the State Service on Food Safety and Consumers Protection covers about 15 spheres of control, and some of them are subject to the moratorium (for example, plant protection), while others are not subject to it (for example, state regulation of prices, which was specifically mentioned).
The moratorium also covers fire safety inspections, labor protection inspections, environmental inspections, etc. (more than 80 spheres in total). All this type of control is regulated by the Law of Ukraine No.877 of 05/04/2007 “On Basic Principles of State Supervision (Control) of Economic Activities”.
The same law establishes all the basic rules for conducting inspections. The Inspection Portal as an integrated automated system of state supervision (control) is widely implemented for this type of inspections. It publishes plans, results, and reports on the implementation of plans for such inspections.
The second category is inspections carried out in the spheres not covered by the above Law No.877:
- currency regulation;
- tax control;
- customs control;
- state export control (except for some issues of space activities);
- control over compliance with budget legislation;
- bank supervision;
- state control over compliance with legislation on protection of economic competition;
- state supervision (control) in television and radio broadcasting;
- state supervision (control) over the compliance of the energy and utility legislation by economic entities operating in the fields of energy and public utilities;
- state market supervision and control of non-food products.
There is a separate matter of state market supervision and control of non-food products. According to the list of types of products subject to control (https://zakon.rada.gov.ua/laws/show/1069-2016-п), 7 agencies control this sphere.
The State Labor Service of Ukraine, the State Emergency Service of Ukraine, and the State Service on Food Safety and Consumers Protection are also among these regulatory agencies. On the one hand, all of them are subject to the moratorium for most spheres of their control, but, on the other hand, they can carry out any inspections in terms of market surveillance.
Actually, market surveillance implies very specific inspection relating to the quality and safety of products instead of the activities of enterprises. But only to those products for which there are special technical regulations in Ukraine. The compliance of products with these regulations should be inspected. The link to the list of products is given in the two paragraphs above.
The moratorium is set by two provisions:
- “It is prohibited to carry out planned state supervision (control) measures in the field of economic activities for state supervision (control) bodies for the period of quarantine or restrictive measures related to the spread of coronavirus disease (COVID-19), and within 30 days from the date of its cancelation” https://zakon.rada.gov.ua/laws/show/530-IX.
- “Temporarily, until June 30, 2020, it is prohibited for state supervision (control) bodies to carry out scheduled state supervision (control) measures in the field of economic activities, except for state supervision (control) over:
2.1. the activity of economic entities classified as high-risk economic entities according to the risk assessment criteria for conducting economic activities approved by the Cabinet of Ministers of Ukraine”;
2.2. the compliance with requirements for the formation, establishment, and application of state regulated prices;
2.3. sanitary and epidemic welfare of the population https://zakon.rada.gov.ua/laws/show/533-IX.
As follows from the wording, both provisions on the moratorium do not apply to the types of control of the second category. These provisions also do not apply to tax audits.
Therefore, another provision, which established a moratorium on documentary and actual tax inspections for the period from March 18 to May 31, 2020, except for unscheduled documentary inspections in case a taxpayer submits a declaration to claim a VAT refund, was added https://zakon.rada.gov.ua/laws/show/533-IX.
In such a way, there are three important conclusions about inspections during the quarantine:
- inspections can be carried out during the quarantine
- category 2 inspections are NOT subject to the moratorium (except for tax audits, which are separately prohibited)
3. category 2 inspections are NOT displayed on the Inspection Portal (logically, category 1 inspection plans are displayed there).
Ukraine has declared a risk-oriented approach to state control. Simply put, high-risk companies should be inspected more often and in more detail. According to the criteria, the regulatory agency does not determine what company will be inspected, but only how often it will be inspected on a scheduled basis. The company’s risk category and the maximum frequency of its scheduled inspections are determined by the following criteria: high-risk category (once every 2 years), medium-risk category (once every 3 years), low-risk category (once every 5 years).
Until May 2018, a company’s risk category was determined as follows:
- A list of criteria for determining a company’s risk category was approved for each sphere of control.
- All criteria were divided into 3 groups: high, medium, and low risk.
If a company falls under one of the criteria in the sphere, it is classified according to the risk category under this criterion. If a company falls under several criteria, it is classified according to the highest risk category under these criteria.
For example, a company was previously classified as a medium risk enterprise in the field of fire safety according to the criterion of using own industrial or warehouse premises, which are classified as category B, with an area of up to 5 thousand square meters under the fire hazard category. Currently, this criterion is divided into 2 indicators according to the facility’s area:
- up to 1 thousand square meters – 5 points;
- from 1 thousand square meters to 5 thousand square meters – 15 points.
In both cases, the enterprise needs to “get” more points due to other criteria to be classified as the medium risk company.
The accuracy of this approach remained vague and questionable, so in May 2018 the Methodology to determine the criteria was changed, introducing a fundamentally new approach:
- A list of criteria and indicators is approved for each sphere of control. An example of a criterion for the State Emergency Service can be the area of the enterprise’s facility (up to 300 m2/more than 300 m2, etc.).
- Each indicator has its “weight”, ie the number of points. Using the previous example, the enterprise with an area of up to 300 m2 obtained 2 points, and in the case of more than 300 m2, there will be 10 points.
- The enterprise is assessed by all criteria, summing all the points.
- Next, the enterprise risk category should be determined according to a fixed scale:
- from 41 to 100 points – high-risk category;
- from 21 to 40 points – medium-risk category;
- from 0 to 20 points – low-risk category
Most regulatory authorities have already revised their criteria and adapted them to the new logic of assessing economic entities. The Better Regulation Delivery Office (BRDO) will soon publicly present the Entrepreneur’s Assistant tool, one of the functions of which is an online calculator of the enterprise risk category. Simply put, this calculator will allow each company to determine own risk category and the allowed frequency of inspections in each sphere.
This material is prepared by the Better Regulation Delivery Office (BRDO), an independent expert and analytical center funded by the European Union under the FORBIZ project and within the framework of EU4Business Initiative.