Central Bank Starts Hunting Tax Evaders by Imposing Card Transaction Limits

The National Bank of Ukraine imposed restrictions on outgoing transfers from one bank card to another, also known as peer-to-peer (P2P) transactions. One individual’s transactions cannot exceed Hr.150,000 per month ($3,700) on all bank accounts, opened in one bank.

The limits are not imposed on volunteers with a legitimate status and on individuals whose income is higher than Hr.150,000 per month ($3,700) on the condition such income can be legitimately proven to the bank.

The central bank’s statement said this measure will last six months and is a temporary one.

Ninety-eight percent of clients should not feel such restrictions since their monthly transfers are within the specified amount, NBU stated in the press release.

How P2P transactions are connected to tax evasion in Ukraine

The restrictions lifted have been discussed since May 2024 and are currently a key measure for the central bank to fight against “drops.”

Drops are individuals who provide their bank account data, PIN codes, and even access to web banking to a third party and get rewards for using the cards for transactions. Such transactions do not show real income – cards are used as transit tools to allocate illegal income.

A typical portrait of a drop is a man of 18 to 34 years old who can be a student, an internally displaced person from the front line, an individual with no job, or economically vulnerable parts of the population, according to the Cyber Police statement.

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In Ukraine, an individual should pay 18 percent of income tax and 1.5 percent of a military tax whenever they get most types of income.

But there are no taxes on card transactions – this is why they can be used to transfer unauthorized income that is never mentioned in any financial or tax statements, nurturing a shadow economy.

“It is difficult to estimate the scale of the problem of using ‘drops’ due to the imitation of the usual behavior of a natural person, but in general, there are tens of thousands of ‘sleeping’ and already active accounts in the system,” the NBU’s statement said.

The drops may provide their services to third parties for once or work regularly giving out their cards for use.

The central bank reported about terminated relations with 80,000 customers in “several of the largest banks,” since they worked as drops. The National Bank believes Ukraine’s budget shortfall to be as much as Hr.1 billion ($24.4 million) of tax income monthly, NBU reported to Ukrinform.

For example, drops are often used by illegal online casinos, paying for drugs and excise products where excise tax is not paid.

Why Ukraine’s volunteers are excluded from restrictions

Ukraine’s volunteers became dissatisfied with the announcement of the restrictions, so Ukraine’s central bank had several discussions on the design of future norms.

The reason for this is that volunteers get donations through card transactions and allocate huge sums of money needed to donate for initiatives against Russia’s invasion of Ukraine.

As many as 92 percent of Ukrainians frequently or regularly donate to the army, according to a Deloitte Ukraine study. The majority donates 50 to 200 hryvnias (about $1 to $5) weekly. 

But volunteers allocate donations to provide the military with power stations, pickup trucks, and drones – the overall sum of cash that individual volunteers gather can reach several thousand or even a million hryvnias.

This was why they were afraid NBU’s restrictions would jeopardize aid to the army from Ukrainians. The central bank replied by excluding volunteers from restrictions.

But to eliminate getting around the measures, the regulator created five criteria for volunteers. Despite National Bank reticence regarding these criteria, Forbes Ukraine provided details.

An individual should be registered as a volunteer and donations should be their typical banking activity. The cardholder should provide a letter from a government agency/military unit/charitable fund about cooperation in fundraising, as well as information about the amounts, terms, and purpose of donations. Information from social media and the internet should provide proof that volunteers used allocated money to cover the army’s needs.

P2P transaction restrictions are not the end

The National Bank announced more measures to fight tax evasion through card transactions.

These include adopting bill No. 11043, which increases fines for violating payment legislation rules and provides legitimate rules for sending data about the drops to Ukraine’s Cyber Police. NBU will also submit amendments to the payment legislation in general, to adopt more restrictive and punishing measures against the drop schemes.

The central bank will also create a data source for banks with clients whose cards were used in the drop schemes.

Banks and non-banks will have increased requirements for payments so they will not violate the rules. The financial sector will also develop indicators, rules, and models for detecting atypical customer behavior that could indicate a drop scheme.

“This move won’t stop the shadow payment scheme entirely, but it will make drop networks more expensive to operate by slicing up transactions and attracting more drops,” Yurii Haidai, an economist at the Center for Economic Strategy quoted its economist Yurii Haidai in its blog.

Haidai thinks that restrictions on outgoing transfers will not be enough to fight the scheme and NBU will impose restrictions on the incoming transfers. These measures may hit tax evasion among online retailers when online shops use card transactions instead of legally confirming the purchase.