Only the laziest do not speak or write nowadays about a forthcoming tax reform
in Ukraine.
The Ukrainian tax system does not work very well. It surely needs a
major overhaul. The faster it happens, the better it is for all of us.
So, what will the tax reform bring us and when is it likely to happen?
These are not easy questions to answer.
Regrettably, there is no single vision of the tax reform so far.
What we have now is two distinct concepts of the tax reform developed by
different teams of experts
The first concept has been developed by the Ministry of Finance under
the leadership of Ms. Natalie Jaresko, the Minister of Finance. This
concept can be viewed as a more authoritative option as compared to the
alternatives. In the spring of 2015 the National Reform Council (headed by the
President of Ukraine) gave Mrs. Jaresko a mandate to prepare the concept of the
tax reform.
An alternative concept has been developed by the Tax and Customs Policy
Committee of the Parliament of Ukraine under the leadership of Mrs. Nina
Yuzhanina, the chairperson of the Committee.
The above concepts are not reconciled with each other and somewhere
offer different solutions to the same tax problems. Ms. Jaresko’s concept is
more moderate and looks much more realistic in terms of its potential adoption.
Mrs. Yuzhanina’s concept is purely «revolutionary» one an thus is not very likely to be implemented, at
least in my point of view.
What follows is a brief description of the key provisions of the both
concepts:
|
Tax issue
|
Jaresko concept
|
Yuzhanina concept
|
|
Corporate tax
|
The rate increases from 18% to 20%
|
The rate decreases from 18% to 15%
Corporate tax transforms into dividend distribution
tax
|
|
VAT
|
The basic 20% rate remains in place, the reduced 7%
rate for pharmaceuticals is to be abolished
|
The basic 20% rate decreases to 15%
|
|
Payroll taxes
|
Introduction of 20% flat income tax
Unified social security contribution rate decreases
to 20%
Abolishment of unified social security contribution
altogether from 2018 on (wages/salaries will be liable to 20% income tax
only)
|
Decreasing income tax to 10%
Unified social security contribution rate decreases
to 20%
|
|
Simplified tax system for small businesses
|
The scope of the simplified tax system narrows to
apply only to individuals (no more to legal entities), whose yearly revenues
do not exceed UAH 2 mln. (approx. USD 100 thousand)
|
Full abolition of the simplified tax system from
2018 on
|
The above table shows that, although different in their solutions, both
of the concepts recognize and try to tackle the same pain points inherent in
the Ukrainian tax system.
For example, both concepts are trying to address the issue of widespread
payroll tax evasion. Many Ukrainian employers just do not bother to pay
official salaries. They “save on” payroll taxes by paying salaries under the
table.
In response to this challenge, both concepts offer reducing payroll tax
burden to motivate employers to pay official salaries to their employees.
Additionally, both concepts identify the unfairness in taxation caused
by the mushroomed simplified tax system that at present goes far beyond the
taxation of truly small businesses. They put forward some solutions directed at
greater equity in this area.
When it comes to mathematics, both concepts are not immune from serious
flaws. Both approaches lower government revenues to a material extent. Some
experts believe that. Jaresko’s reform could result in about UAH 60 billion
(approx. USD 3 billion) loss in revenue, and Yuzhanina’s reform could
total some UAH 150-200 billion (approx. USD 7-10 billion) in decreased revenue.
Against the background of the UAH 603 billion (approx. USD 30 billion) total
government budget for 2015, the predicted losses are more than significant.
It comes as no surprise that the IMF, with which the Ukrainian
government is closely cooperating now, is not pleased with either of the
concepts. The IMF suggests that serious consideration be given either to
finding replacement revenue for lower tax receipts or cutting government
spending accordingly.
Ms. Jaresko and Mrs. Yuzhanina do not surrender to each other and try to
do their best to incorporate exactly their versions of the tax reform into the
tax legislation. Many observers hope that they will find enough wisdom to turn
from opponents to allies and will negotiate a compromise package to the
advantage of our country.
*- Photos from http://289zradnykiv.wtf and http://zn.ua
