Problem

One of the most crucial economic regulators of land relations in Ukraine is the normative monetary appraisal of land plots, which is based on methodological principles established in the second half of the 1990s and uses indicators unrelated to the market benchmark of appraisal. As a result, the normative monetary valuation of land plots is almost always either lower or higher than the real market value of such plots.
The use of a non-market valuation basis for taxation of land plots and especially for setting the amount of rent for tenants of state and municipal land creates extensive opportunities for corruption. Under conditions when the monetary value of a land plot is determined based on regulations, it is not uncommon for the actual amount of rent paid for a state or municipally owned land plot to be significantly (sometimes tenfold) lower than the market rent charged on the secondary market for such land.
The formula and methodology for calculating the normative monetary valuation are extremely complex and do not ensure the appropriate quality of the results of such calculations, and they lack clear and simple algorithms for quality checks, which leads to abuse by authorities and officials.
Significant corruption risks are also inherent in the legislation on determining the amount of rent for state-owned and municipally owned land plots. The provisions of the Law of Ukraine On Land Appraisal stipulate that the normative monetary valuation is also used to determine the amount of rent for such land plots. The flawed nature of the normative monetary valuation leads to a number of negative consequences (including corruption) when it comes to leasing state-owned and municipally owned land plots.
The Tax Code of Ukraine allows setting the rent for state-owned and municipally owned land plots in an unreasonably wide range: from 0.3 percent to 12 percent of their normative monetary value. This situation allows unscrupulous officials to lease out state and municipal land by setting rent amounts that can be significantly below market rent levels, and therefore leads to corrupt practices resulting from this opportunity.