You're reading: Experts: Lowering, simplifying taxes will help economy

A group of experts wants to cut payroll taxes on employers, exempt reinvested corporate income from taxes and reduce the involvement of government officials in tax collection.

These are some of the ideas that may emerge
in the final recommendations on Aug. 27 of the advisory National Reform
Council, which is tasked with helping parliament draft legislation to ease one
of the worst tax systems in the world. Ukraine’s taxes are punitive and
bureaucratic, prompting massive evasion and a shadow, off-the books economy
that may rival the official one.

A panel of experts held a press conference
on Aug. 25 to talk about competing versions.

According to Volodymyr Dubrovskiy of
Reanimation Package of Reforms, the problems run deep — from the way the value
added tax is administered to an excessively high 42 percent payroll tax.

The corporate income tax, as structured,
encourages companies to conceal at least part of their profits.

Dubrovskiy and others want to decrease the
payroll burden to a single, flat rate personal income tax of 20 percent and
eliminate the social security payments paid by employers. At the moment, the
high taxes discourage employers from legal employment and “punish them for
paying salaries,” Dubrovskiy said.

Electronic tax payments are suggested to
eliminate the officials’ personal involvement in tax administration. The
personal involvement of officials invites only corruption and arbitrariness.

The corporate income tax is proposed to be
levied only from part of the income distributed among shareholders, exempting
money reinvested in the company. To compensate for budget losses, a company
asset tax is introduced.

Tax revenues will drop under the proposed
measures, but they will anyway with a shrinking economy.

“The cow doesn’t give milk any more but
they continue milking it until it actually dies,” said Illya Neskhodovsky of the Reanimation Package
of Reform, explaining that the reported increase of tax revenues this year is
not healthy.

The Finance Ministry reported a 33 percent
increase in state budget income to Hr 298.7 billion ($13.6 billion) in the
first six months of 2015 compared to the same period last year.

“The economy is in such state that we don’t
have the possibility to give what the Finance Ministry wants,” Neskhodovsky
said.

Although no quick results are expected, the
simplification should not be a drag on the economy.

Successful tax changes will invite greater
compliance and signal that the government is serious about improving its
business climate, said Valery Pekar, founder of Nova Kraina.

Some economists also want constitutional
changes to limit the size of government spending to no more than 35 percent in
Ukrainian economy.

“If the adopted reform is radical enough
and stimulating the economic growth, all civic organisations will cooperate
with them (the authorities),” Pekar, founder of Nova Kraina, said. “If it is
cosmetic and corruption-favourable… if it is fraud just like last year when
military fiscal mobilization was called a successful tax reform, all civic
organizations and business circles will toughly resist the increase of
corruption in Ukraine.”

Kyiv Post staff writer Olena Gordiienko
can be reached at
[email protected]

Photo by Ukraine Crisis Media Center