The aim of the Dec. 28 tax reform passed by Parliament is to encourage small and medium businesses to flourish and provide a larger share of Ukraine's gross domestic product. One way to do that is to lighten and simply the tax burden faced by such business.
Experts say the new tax law is only a step in the right direction. Many taxes remain too complicated to manage, while others are questionable. Lobby groups say tax rates overall should have been decreased in order to stimulate businesses.
However, the de facto state of war with Russia still requires additional tax money to cover military expenses and meet the austerity requirements for continued International Monetary Fund lending.
Under the new system, the corporate income tax will bring 18 percent less revenue in 2015, or Hr 33 billion. Meanwhile, value added tax collection will grow by 5 percent, up to Hr 158 billion, and personal income tax revenue – threefold, to Hr 42 billion.
Currently, Ukraine’s personal income tax is 15 percent for people making less than Hr 12,150 a month – or $761 — while the rate has been increased to 20 percent for people making more than that amount.
Prime Minister Arseniy Yatsenyuk’s logic behind the move was to let small businesses develop, while keeping most of the tax levies on the big corporations.
Vox Ukraine
Oleksiy Burlaka, an expert with Vox Ukraine, a policy advising group, says the social security rate decrease down to 16.4 percent from the previous rate of 41 percent is a temporarily measure and doesn’t solve the problems of all the businesses.
Managing the value added tax, one of the key corporate levies, electronically is way too difficult. The schedule for paying it is also complicated.
Reanimation Reform Package
Reducing the social security tax compounded with increasing the personal income tax rate up to 20 percent, from 17 percent, is a very limited measure, says Yulia Drohovoz of Reanimation Reform Package, another policy advisor. “It’s like being half pregnant,” she adds.
Moreover, the punishments for violating the new tax requirements are quite heavy.
Union For Protection of Entrepreneurship
Business community has been expecting a greater decrease of the tax burden, admits Sergiy Dorotych of Union for Protection of Entrepreneurship, a lobby group. “Various associations are planning the protests and public discussions,” he adds.
Dorotych is disappointed that the government doesn’t pay a special attention to those businesses that have been managing their affairs transparently, paying all the taxes. The reform treats them and those who did shadow deals equally.
He believes, the tax system still lacks effectiveness as many manage to keep violating its rules. Doing shadow financials is way more profitable than paying the taxes.
Kyivstar
The reform doesn’t change much how the big businesses are run in Ukraine, says Mykhailo Shuranov, a spokesperson for Kyivstar, a telecom company. However, he thinks that smaller businesses benefit quite essentially.
Gide Loyrette Nouel
Vasyl Yurmanovych, an expert with Gide Loyrette Nouel law firm, believes the tax reform is a rather positive signal for foreign investors.
He believes, effective use of the transfer pricing legislation, a key measure to prevent big corporation from paying taxes in the offshores, should add a lot to this.
Julian Ries of Gide Loyrette Nouel says the taxes focused on supporting the country’s military spending might not be fair, but there are political reasons for introducing them. However, he thinks the rates should be kept low where possible in order to bring the businesses out of the shadow.
Ries praises the new way of managing the value added tax as it makes various frauds with it unlikely. Moreover, it solves the problem of getting the tax paid back, if it qualifies for reimbursement. “With this reform, we get a reliable system for reimbursement of value added tax,” expert comments.
“What we have seen so far and discussed with clients, this is a positive sign. It makes things easier,” Ries adds.
The tax compromise, allowing the companies that have been evading taxation to pay 5 percent of the tax evaded during these years and go on, is a good idea too, Ries believes.
“About 40 of 50 percent of the economy are somewhere in the shadow,” he says. “Tax compromise is the first step to bring the economy back into the light and the next step may be to legalize capital on the foreign accounts.”
While Ukrainian companies used to have several accounts for keeping its books, one for paying the taxes and another one for seeing the true revenues, the situation gets better with a reform.
Lavrynovych & Partners
Roman Blazhko, a lawyer at Lavrynovych & Partners, doesn’t see a substantial change in how the taxes are being paid in a 45-million nation. However, he believes the value added tax should be managed better as some of those who are subject to it still hasn’t received the notifications on how they are supposed to pay this tax.
Baker & McKenzie
Viktoriya Stavchuk of Baker & McKenzie, a law firm operating in Ukraine, suspects the 5 percent rate of the tax amnesty might be a trick as some part of the revenues will have to be taxed in full.
Avellum Partners
Vadym Medvedev, expert at Avellum Partners, says about impossibility to question the assessment of the Tax Service whenever it’ll be doing calculations for the amnesty.
“In this case, the company will have a difficult choice: either to agree with the unjustified tax assessment in order to save the right to tax settlement or to challenge it but pay the full amount of tax,” he says.
Kyiv Post staff writer Olena Gordiienko can be reached at [email protected]. Kyiv Post legal affairs reporter Mariana Antonovych can be reached at [email protected].
