Tax Reform Models: Where is Ukraine heading?
At the National Council of Reform’s meeting, which took place on the 3rdof September 2015, the Minister of Finances in Ukraine Yaresko N. E, presented the draft law on tax reforms from the Ministry of Finances in Ukraine, while the Parliamentary Committee on Taxation and Customs Policy Chairwoman, Yuzhanina N.P presented the Committee's draft law on tax reform.
The Ministry of Finances in Ukraine defines that the objective of the reform is to build a simple, transparent and fair tax system , which encourages investments. For this purpose, it has been proposed to establish a 20 % rate of taxation for corporate income tax ( currently at 18%),for value added tax ( VAT, currently at 20%), for income tax (PIT , currently at 15% and 20%) and for the single social contribution for the Statutory Social Insurance(SSI, currently averaging at 41%)
Reducing the rate of the single social contribution for the Statutory Social Insurance to 20% is a significant reduction of the burden on the payroll tax , which in turn will partly address the problem of informal employment. The unification of the income tax and the Statutory Social Insurance tax, and the establishment of a uniform tax rate at 20% is planned for 2018. As has been noted by the Minister of Finances in Ukraine , Yaresko N.E , such a gradual reduction on the payroll tax burden has been called for in order to prevent a sharp decline of the Ukrainian Pension Fund income.
The biggest uproar among the subjects of the pharmaceutical market was caused by the increase of the VAT on medical products from 7% to 20%. The Ministry of Finances in Ukraine believes that this will allow the State Budget income to increase by 9.8 billion UAH , which will be aimed at reforming the healthcare system.
Aside from this , the Ministry proposes to establish a new simplified tax system , which will be aimed only at individual entrepreneurs and will include three groups of single tax payers : A, B and C. The groups will be differentiated only by the amount of income. Thus, for group A it will not exceed 300 thousand UAH., Group B shall not exceed 2 million UAH and group C will include agricultural product manufacturers , whose income does not exceed 2 million. UAH. These changes are aimed to eliminate the manipulation of taxes from individuals with a large level of income.
The Parliamentary Committee on Tax and Customs Policy defines the key directions and goals of tax reform as follows : 1) the creation of a unique fiscal environment for business development and economic recovery; 2) solving the problem of the tax burden on the payroll through the establishment of such a burden within 30%; 3) recovery of the investment climate by reducing direct tax rates, tax exemption for reinvestment; 4) pulling the economy out of the shadows - the establishment of fair tax rates and the simplification of administration in order to encourage the legalization of business.
Unlike the tax reform of the Ministry of Finances of Ukraine, the second model involves differential rates of taxes: income tax at 15% VAT at 15%, personal income tax at 10% and the single social contribution for the Statutory Social Insurance at 20% . The proposed simplified tax system does not provide changes in the number of groups nor for the reference criteria for the first group of taxpayers, while establishing changes in criteria for the other three groups. Thus,it is planned to reduce the number of employed persons to 5 in the second group,to 10 for natural persons and 25 for legal entities in the third. Also it has been planned to reduce the amount of income to 5 million UAH in the third group, while limiting it to 100 million UAH in the fourth.
Thus ,following the discussions of the reports, it has been decided, until the 30th of September 2015 to establish a working group for the revision of the tax reform concepts, for the concurrence of the key points and the development of a unified tax reform concept.
