While businesses and the Finance Ministry agree that clear, transparent and predictable taxes are necessary, corruption is getting in the way of changes again.
In a recent American Chamber
of Commerce survey of its more than 600 members, tax reforms appeared as this
year’s key challenge and priority for businesses. For the Ukrainian business
ombudsman, tax issues are the No. 1 complaint he receives. To fix this, the
finance ministry has been trying to balance out the rates, while experts say
that more is necessary.
“The current tax system is unfair and complicated,” Finance
Minister Natalie Jaresko said during a press briefing on Sept. 7.
There are four main taxes – corporate income, single social
contribution or payroll tax, value added and personal income – that branch out
into 90 different rates ranging from 0 to 49.7 percent. Jaresko is proposing to
implement a plain rate of 20 percent to all of them.
The main change will be felt in the single social
contribution tax, which will drop from the high of 41 percent to 20 percent in
a bid to get more employers to declare their workers as official employees.
Some want the tax to be merged with the personal income tax
starting sooner than 2018 as proposed by Jaresko.
“Of course we would like to make this step immediately. But
we have to be realistic and understand that our country can’t afford that right
now,” Jaresko said. Decreasing the tax by one percentage point will lead to the
loss of Hr 5 billion from the pension fund, she said.
Some experts find Jaresko’s proposal not radical enough and
favor the parliamentary version presented by member of parliament Nina Yuzhanina from the Bloc of
President Petro Poroshenko.
Yuzhanina offers reducing the
rates of personal income tax from 15 to 10 percent, the value-added tax from 20
to 15 percent and corporate income tax from 18 to 15 percent. The single
social contribution tax is the only similarity to Jaresko’s plan where it would
be at 20 percent.
“The reform proposed by the Finance Ministry is conservative
and doesn’t foresee real changes,”
Illya Neskhodovsky of the Reanimation Package of Reform, a civic platform for
non-governmental organizations and experts, told the Kyiv Post. “It
doesn’t offer any significant easement of tax burden for business, fixing it on
the current level instead.”
But Vladimir Kotenko, an EY Ukraine partner, calls Jaresko’s
plan balanced.
Yuzhanina’s version, which he considers more attractive from
the point of view of tax rates, will unavoidably lead to the increase of cash
registers and tax inspectors.
While the reform versions of
the finance ministry and parliamentary tax committee differ mainly in rates,
businesses want to go beyond the tax rate conversation.
Generally, businesses are not so much focusing on the tax
rates, American Chamber of Commerce president Andy Hunder told the Kyiv Post.
“Get it right in terms of the administration,” Hunder said. For example, big
business doesn’t want authorities coming to them asking to pay taxes ahead of
time, he explained.
“The efficiency of fiscal authorities should
definitely be improved,” Hunder said. “That means to provide liability of tax
authorities for unreasonable decisions and reimburse the court expenses in case
of a court decision that favored the tax payer.”
Business Ombudsman Algirdas Semeta told the
Kyiv Post that the main complaint he receives from businesses is regarding the
value-added tax.
“This is a huge problem for many businesses because they
really do not understand the rules,” Semeta says.
Lack of transparency and the abuse of power by inspectors
are other problems.
One way to fix this problem
is to switch to an electronic tax declaration system which will make life much
easier for businesses since it will eliminate the human factor. “There is less
opportunity for corruption,” Hunder says.
But many tax authorities have not been performing their
service duties well where businesses are advised to use websites of private
companies for electronic processing, said Semeta. “It’s the duty of the tax
authorities to provide the necessary help and not to push businesses to private
websites in order to pay fees for the services.”
The ‘prevent, publicize and
punish’ approach should be applied to all forms of corruption in Ukraine
especially in the tax services, AmCham’s Hunder said. “The system has been
corrupt in the last two decades. If we don’t get it right now, then what does
it hold for the future?”
Kyiv Post staff writers Olena Gordiienko and Ilya Timtchenko
can be reached at [email protected] and [email protected].
