national policy

Tax initiatives of the coalition could drain the national budget

Tax initiatives of the coalition could drain the national budget
Photo: PHL

There is a disagreement between the State Fiscal Service (SFS) and the Verkhovna Rada of the new convocation. The tax groundwork of the SFS and the Ministry of Finance has been put in doubt. Particularly, this applies to the much talked about initiative of the fiscal bodies on the introduction of the electronic administration of the VAT starting next year. The members of the parliament spoke against these changes referring to the coalition agreement.

Meanwhile, the representatives of the SFS claim that absence of the system of electronic administration of the VAT will lead to billions in losses for the national budget. In view of the current situation with filling the budget, this is inadmissible, Chair of the SFS Ihor Bilous told journalists yesterday.

Hidden motives

On December 2, a group of MPs representing all political forces of the coalition submitted a bill on cancellation of the new rules of VAT administration. As a reminder, they were to take effect on January 1, 2015. While the current system of tax administration requires transfer of the amount of the tax to the national budget at the end of the reported period, for instance a quarter, the new rules envisage their immediate transfer to the VAT account, which a company must open with the State Treasury.

Several days before the initiative of the deputies appeared, Bilous announced his readiness to postpone the introduction of the new system for three months. Also, together with the Ministry of Finance they proposed to change the criteria for the automatic VAT refund. “The technical issues have already been resolved with the State Treasury. We can launch the system in a week. However, we are ready to postpone its official introduction by running it in a test regime until April 1. These three months can be used to fix all drawbacks, see what does not work in the IT sphere, in the tax refund and the criteria and see the negative sides,” Bilous said yesterday.

Members of the parliament, however, speak not so much about schemes of optimization that the companies use with VAT, but about the risks of electronic administration of the tax for businesses. “The proposed mechanism of payment through VAT accounts will lead to continuous diversion of the working capital of companies and in conditions of economic instability this could lead to their bankruptcy,” reads the explanatory note to the bill.

In addition to that, one of the bill’s initiators Oksana Prodan (Petro Poroshenko Bloc) explains that the previous convocation of the VR approved the law on electronic administration of the tax in haste. “This initiative was not discussed with experts and companies. As a result, there are many hidden mines in it,” says Prodan. She believes that the chances of adoption of the bill cancelling the old law are quite high, because it was signed by representatives of all factions of the coalition. Furthermore, the coalition agreement contains a clause on cancellation of electronic administration of the VAT in its present form. The deputies are ready to work on development of alternative methods of VAT administration, specified Prodan.

However, it is unknown how fast the new version of the rules may appear. In addition to that, taking into account the powerful business lobby in the VR, the initiative may fall into oblivion in the process of improvement of the VAT collection system.

Budget risks

Representatives of the SFS are convinced that delaying introduction of the new rules of VAT collection is dangerous for the national budget. The purpose of the changes, which still have to take force starting next year, is to remove the fictitious VAT “painted” by financial groups. In addition, if the current tax system remains in place next year, that the budget will fall short of tax revenues, says Bilous, particularly since there are not so many real compensators. “Without the changes that we propose VAT will be “hidden” again. Without revision of the rates of the unified social tax, wages will remain in the shadows,” emphasized Bilous.

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