The Ukrainian government has dismissed the acting head of the State Fiscal Service (SFS) Myroslav Prodan, which is responsible for collecting state revenue and taxes.

Prodan has submitted a request for his own dismissal, also declaring his intention to participate in a competition to appoint the body’s permanent head. His dismissal is reported to be related to a prosecutor general’s investigation into misappropriation of funds.

Prodan was appointed to the post in March 2017 following the suspension of the SFS's Roman Nasirov, who was indicted by the National Anti-Corruption Bureau of Ukraine (NABU).

Ukrainian anti-corruption authorities allege that Nasirov provided restructuring of rent payments for gas production companies associated with fugitive Ukrainian lawmaker Oleksandr Onyshchenko. 

Nasirov arrest was billed as the “first big fish” to be netted in the nascent anti-corruption drive and the first member of the government elite to be indicted by the National Anti-Corruption Bureau of Ukraine (NABU), in became a test of Ukrainian justice system. It was a test the system has failed. He is accused of giving an order that cost the state budget UAH2bn (€70mn). In March, Nasirov was released from custody in Kyiv after his wife posted the UAH100mn (€3.5mn) bail. 

Prodan’s dismissal is another failure for the system and likely has more to do with power politics than running the country or fighting corruption.

Zenon Zawada at Kyiv-based brokerage Concorde Capital believes that alleged corruption at a state body as lucrative as the SFS "comes as no surprise".

However, what’s significant here is that Prodan belongs to the entourage of the nation's Prime Minister Volodymyr Groysman, while the prosecutor general’s office is controlled by President Petro Poroshenko. "So the investigations indicate tensions between the two leaders and their inability to form a political alliance ahead of the presidential election campaign (the elections are expected in March 2019). Such an alliance would have 'ironed out' any alleged corruption," Zawada wrote in a note on September 6.

While Groysman was elected to parliament in 2014 as a candidate with the Poroshenko Bloc, it’s unlikely he will compete with the same party in the October 2019 parliamentary elections, the expert believes.

"He will likely compete for a single-mandate district (if they remain) as an independent representing his native Vinnytsia, where he remains very popular," Zawada added. "He will remain an influential player in Ukrainian politics, particularly if he’s able to avoid damage to his image from the natural gas price hikes that are being demanded by a mission of the International Monetary Fund (IMF), which starts its talks with the government today."

Earlier, the IMF demanded from Kyiv to reform the SFS. Specifically, the SFS should be reorganised into "a single legal entity", its staff will be reshuffled with the aim of leaving in place non-corrupt professionals with higher salaries. The Ukrainian authorities are also going to increase payers trust to the system via automating the process of tax administration. SFS pressures on business should be decreased via transform into "a service organisation", the finance ministry said.

The IMF already pointed out the progress in the reform of the SFS, in particular in VAT refunding. At the same time, corruption and the reform's slow pace are among the factors hindering the reform, the finance ministry added.