Prime Minister Arseniy Yatsenyuk at an Aug. 6 Cabinet of Ministers meeting presented the government’s vision for simplifying the nation’s complicated tax system. It calls for cutting the number of taxes from 22 to 9, creating a single financial crimes agency, decentralization, and the introduction of a progressive income tax.
“We are taking one month to discuss the reform with business,” the prime
minister said, adding that he wants table the full package of economic reforms
in parliament in the first week of September. “If there are alternatives –
propose them. If there are better options – show them.”
Yatsenyuk emphasized that next year’s state budget based on the current concept he presented.
The tax
number reduction will happen once special duties are cancelled on the transport
of oil and gas through the country’s pipeline system, in tourism, vineyard
cultivation, and car parking. Moreover, a number of other taxes will be lumped
into more general categories, such as excise, ecology, subsoil, real estate and
unified taxes.
“What
we’re cancelling is a number of rudiments, 123,000 taxpayers use their time
inefficiently (while paying for licenses and patents),” Yatsenyuk noted.
Taxpayers
currently spend on average 390 hours a year on what many describe as cumbersome
tax procedures, according to the latest World Bank Ease of Doing Business
survey. Overall, Ukraine ranks 112 out of 189 countries in the report.
After many
in Ukraine’s eastern oblasts started demanding that more powers be passed from
Kyiv to regional and local governments, the Cabinet decided to transfer several
tax revenue sources to local budgets, particularly those coming from collecting
real estate and agriculture taxes.
“We are giving a big part of financial resources to local communities, so
the two basic taxes such as real estate tax and single tax that used to be
called agriculture tax will be given under the competence of local
communities,” Yatsenyuk said.
The government is scheduled to approve its bill on budget decentralization on
Aug. 6, and expects parliament to pass it on Aug. 12.
“You receive tools in the form of taxes that are earned and
distributed locally. You work better – you earn more. You work worse – you earn
less,” emphasized the Cabinet’s chairman. More financial autonomy means
better access to borrowing, including borrowing from international financial
organizations, he added.
Addressing
long-standing criticism from auditing firms like Deloitte and EY, to name just
a few, of cultivating country-specific accounting standards, Yatsenyuk’s government
wants to start adjusting local accounting standards to the International
Financial Reporting Standards (IFRS) – world’s common language for presenting
corporate financial information.
However, the
U.S. has its own accounting standard – Generally Accepted Accounting Principles
(U.S. GAAP) – which differs from the IFRS on a number of issues with revenue recognition
as one of the key items.
All
reports will be filed on a quarterly basis through a single window with a
substantially lesser amount of paperwork needed to be done, according to the
country’s prime minister.
Meanwhile,
the nation’s largest agriculture producers – the 10 percent that generate 68
percent of the sector’s revenue – will move to a general taxation system, while
the rest will stay under a privileged scheme to further stimulate development.
A tax that takes a larger percentage from the
income of high-income earners than it does from low-income individuals is also
proposed. Under this system, single social tax will bring Hr 50 billion, or 26
percent less revenue, while personal income tax revenue will grow by Hr 2.5-14.7
billion – or by 4.3-25 percent, depending on which model business and
government agree upon. Meanwhile, personal dividends will be taxed with a 15
percent rate that might attract Hr 1.5 billion additionally, boosting this
revenue source by three times.
A
financial crimes agency called the Financial Investigations Service will be
formed under one roof, alleviating overlapping responsibilities held by state
Fiscal Services, Interior Ministry and State Security Service.
The business community welcomed the government’s proposals with cautious
optimism. Anna Derevyanko, head of the
European Business Association, says that the Cabinet’s concept is a step in the
right direction, but more is needed. “This is a good start,” she
says. “But it could have been more radical, this is why the Georgian
experience is attractive.”
“Among the positives are reduction of the single social tax, alignment
of tax and accounting reports, improvement in administration, as well as
optimization of controlling functions,” she said. At the same time, she
said that her association is “categorically against” the introduction
of a progressive tax on income.
