National Policy

Having announced tax reform, it appears that the Cabinet is unable to finalize it

Having announced tax reform, it appears that the Cabinet is unable to finalize it

Yesterday the Cabinet of Ministers held a meeting behind closed doors. Journalists were unable to find out what the agenda was or get commentaries from ministers about the plans of the government. Minister of Economic Development and Trade Aivaras Abromavicius, who came to the press briefing, preferred not to speak about what interested the journalists the most – namely, tax and budget affairs. The minister did not answer questions about drafting of the national budget and macro indicators, which will be planned in the budget, saying this is a prerogative of the Ministry of Finance.

Even the parliamentarians did not hear the details of the meeting from the Cabinet. No MPs were allowed into the meeting. A high ranking official from the Ministry of Finance on condition of anonymity told Capital that the final version of amendments to the Budget Code and the Tax Code has not yet been approved. There are controversial issues on the initiatives that concern the social welfare sphere. The source assumed that it might take two more days to finalize the documents. Most likely the government will hold another meeting this week dedicated to finalizing the reforms. After that the package of documents will finally be submitted to the Verkhovna Rada.

Silent consent

A day prior to the closed meeting Premier Arseniy Yatsenyuk presented the plan of actions of the government for 2015-2016. Many initiatives the premier spoke about are included in the drafts of changes to the Tax Code, which Capital has a copy of. A source of the publication in the government that showed the documents explained that this was the way the draft looked on Monday. The source does not know what was deleted from the draft or what was included in it on Wednesday. Be that as it may, the earlier drafted proposals will not likely be conceptually changed.

The latest version of the draft of changes to the Tax Code contains a number of norms on strengthening control over the personal incomes of citizens. A tax amnesty of capital has been proposed. Taxpayers will be allowed to disclose all their earnings one time, including those received illegally. At that, fiscal bodies will not impose any sanctions for this. However, in the future declaration of incomes will be mandatory. In addition to that, as it was promised earlier, the Cabinet remained true to the idea of reducing the tax burden on the payroll by revising the rates of the Unified Social Tax from 41% to 15% in stages. The government also proposes to introduce the progressive scale of personal income taxation.

Another proposal from the government is reducing the circulation of cash on the market. The plan of action envisages that the National Bank of Ukraine and the State Fiscal Service will approve the corresponding documents for this. Due to this the initiative of the government to tax not only incomes, but also expenses of Ukrainians raised a public stir. It is envisaged that citizens that received a shadow income and did not pay the 15% tax at once will have to pay double the rate after the tax authorities discover such a violation. Experts do not fear the radical proposal itself, but the way that fiscal bodies will enforce it. “On the background of the current level of corruption it is quite difficult to control the controlling bodies,” says President of the Taxpayers’ Association Vasyl Matiychyk. The expert believes that instead of the 10 minimum wages (now it is UAH 12,180) proposed by the Cabinet, control over expenses should begin at 50 minimum wages. “In this way it will be possible to control civil servants who drive vehicles with a price tag of US $250,000, while they only earn a salary of UAH 1,800,” said Matiychyk.

Another tax that the Cabinet is planning to introduce is the pension tax on the purchase of hard currency. Instead of today’s 0.5% rate, which applies to individuals, companies and banks, there is a proposal to introduce a 2% tax, but only for retail purchases. This means that if Ukrainians will need to buy US $1,000, they will have to pay another US $20.

Protracting the reform

Meanwhile, judging by how the members of the government keep their latest developments secret the final version of the bill may be a surprise not only for the people, but also for parliamentarians. Yesterday, having not received proposals from the Cabinet, the VR Tax and Customs Policy Committee reviewed the coalition’s drafts on introduction of a tax compromise and cancellation of electronic administration of the VAT.

Oksana Prodan (Petro Poroshenko Bloc) told the publication that today an extraordinary meeting of the committee is planned to be held for approval of the draft on a tax compromise. In addition, the committee will make a final decision on the draft law on cancellation of electronic administration of the VAT. Some committee members insist on full cancellation of the law, while others propose to postpone its introduction for several months.

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