American Chamber of Commerce in Ukraine concerned about possible changes to nation's taxes

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Aug. 2, 2012, 9:20 a.m. | Ukraine — by Interfax-Ukraine

Head of the State Tax Service of Ukraine Oleksandr Klymenko

The American Chamber of Commerce in Ukraine expresses concerns about the number of initiatives proposed by draft amendments to the Ukrainian taxation system, including the introduction of 2.5% turnover tax.

"The proposed tax in the amount of 2.5% may undermine the growth of many companies in Ukraine since payment of this tax is not related to business profitability and is intended just to charge 2.5% from the company revenues, which in many cases is the company margin. In addition, according to international best practices, the aforesaid tax and VAT [value added tax] are never applied at the same time – parallel application of turnover tax and VAT will complicate the taxation system and in spite of reducing VAT will undermine doing business by business entities in Ukraine," the Chamber said in a statement on Wednesday.

"The proposed change of the rate will not contribute to unshadowing of economy and improvement of the investment climate. On the contrary, it will reinforce the shadow economy and will deteriorate investment climate due to the nature of the change, which will require adaptation to it. As we are talking about an indirect tax which by its nature has to influence business neutrally the problem is not the change of the rate, but administration of the tax," the statement quotes President of the American Chamber of Commerce in Ukraine Jorge Zukoski as saying.

The cancellation of ceiling value of salary (10 minimal salaries) from which a single social security contribution is charged poses yet another concern since if implemented it can have a significant adverse effect on costs for payment of salaries creating an additional tax burden for multinational companies in Ukraine, the Chamber said.

According to the statement, international business community is also alarmed by the initiative to introduce a contribution to the Pension Fund for purchasing foreign currency in import operations in the amount of 3%. Formerly the contribution amount did not exceed 1.5% however even then negatively influenced the activities of business entities engaged in foreign economic activities.

"Introduction of contribution for purchasing and selling foreign currencies (which in reality is a tax) will cause increase of production costs and, as a result, increase of prices. As margin of many industries is small, business will try to shift the costs related to payment of this tax upon consumers," Zukoski said.

International experts believe that if despite all efforts of the business community to prevent the introduction of this contribution, such action is taken, another step - mandatory selling (complete or partial) of currency receipts in favor of the Ukrainian residents on interbank forex market should be introduced to enable reduction of the total value of foreign currency and, although indirectly, compensate for the costs of business entities for payment of the contribution.

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