The government's emergency economy-saving measures include tax novelties that came into effect on April 2 after approval by parliament.
Tax hikes and brand-new taxes will affect business and personal income.
Prime Minister Arseniy Yatseniuk touted the measures as “pain-killers” the nation had to take to get an immediate relief and then design new measures for growth. The adoption of this law was one of the preconditions for a $14-18 billion, two-year deal with the International Monetary Fund, which is expected to be approved this month.
Igor Bilous, the deputy finance minister in charge of the tax system, said on April 2 that the government is working on an initiative to reduce the number of taxes in the future, and simplify their administration. He has been in the job for just over three weeks, and said the plan is in its early stage yet.
Here are all the new taxes, at a glimpse:
Foreign exchange tax
As of April 1, any company or individual buying foreign currency has to pay 0.5 percent foreign exchange tax. The tax had existed in various forms until 2010, but then was canceled by the previous government.
Higher bill for energy
To cut heavy state subsidies to the energy sector, the government is raising gas and heating prices for the population. The prices for energy will raise “in order to prevent country’s bankruptcy,” according to Yatseniuk, and also to meet one of the IMF’s long-standing conditions.
According to the Cabinet decree № 81, the raise will be gradual and will continue until 2018. National gas and oil company Naftogaz management said that as of May 1 the prices for gas will increase for 50 percent. Yatseniuk indicated later that the hike might be even steeper. However, families who are struggling to pay the bills, will receive Hr 500 in subsidies from the government.
Medicine tax
As of April 1, a new 7 percent tax came into effect on import of medicines and medical equipment, which will translate into a price hike for foreign medication. Until now, Ukraine had no VAT on drugs and medical equipment. The tax does not effect domestically produced medicine, whose price should remain stable.
Structure of social benefits changes
The government has cut subsidies for newborn babies, which had been eating out a substantial chunk of the national budget expenditure. The benefits for newborn babies will be Hr 41,280 per child, regardless of the number of children in the family. Previously, payments were scaled, with the subsidy for the second child growing to Hr 71,000, and third – Hr 141,000.
VIP pension tax
Pensions that exceed Hr 10,000 will be taxed at 15 percent rate. This tax effects privileged categories of pensioners, such as civil servants, judges, prosecutors, investigators, diplomats and the like.
Bureaucracy will be reduced
The government plans to save some Hr 1.35 billion per year by cutting down the number of state employees. Some 24,000 civil servants, as well as 79,400 Interior Ministry employees and 3,350 Security Service workers will be laid off, as well as 2, 263 workers of prosecutor’s offices.
Corporate profit tax and VAT frozen
The current rates of profits tax and value-added tax were fixed at 18 percent and 20 percent, respectively.
The previous government’s tax reform that envisaged scheduled tax reductions in the next few years was annulled.
Passive income tax
As of July 1 all passive income will be subject to taxation at range of rates, from 15 to 25 percent, depending on the income. Any dividends, royalties and investment income fall under this law. Previously, the rate of passive income tax was 5 percent.
Minimum wage is frozen
Public sector salaries and pensions will be frozen at current levels. They serve as a basis for calculation for other types of social payments, such as pensions and subsidies, and keeping them at the current level should keep a reign on the budget expenditure. They will be adjusted to inflation at the end of the year, however.
Kyiv Post junior staff writer Iryna Yeroshko can be reached at [email protected]
