Kyiv, December 2, 2015. Experts have different opinions of the draft Tax Code proposed by the Ministry of Finance of Ukraine. During the discussion at Ukraine Crisis Media Center, experts named the advantages of the government project: transformation of a simplified business tax system; the idea of transition to a one-tier system of appeal of State Fiscal Service (SFS) decisions, and the balanced system of public finances, which include tax reform and the 2016 draft budget.
According to the experts, the tax reform will be successful if the amendments are adopted in time. Volodymyr Kotenko, Partner at Ernst & Young, said: “We should not make 2015 the year of tax reform, because it is unacceptable to approve the Tax Code, which will work from January 1, in December.”
At the same time, panelists highlighted a number of shortcomings related to the proposed system of tax administration. They include, in particular, lack of open electronic applications register for VAT refund on the “first come – first served” principle (he who applied first, will be the first to get refund). Also, the draft Tax Code does not provide for the demilitarization of tax police, that is transforming SFS from a supervisory authority into customer service.
Serhiy Verlanov, Partner at the law firm “Sayenko Kharenko”, Head of tax practice, focused on the advantages and disadvantages of a one-tier system of appeal of SFS decisions. “A two- tier system is inefficient today, so the idea is appropriate,” said Verlanov. “At the same time, it is impossible to implement the proposal of forming the Appeals Board, which will consider cases on the accrual of additional tax liabilities for amounts over 1,000 non-taxable minimums. Last year there were over 6,000 such cases. Three representatives of SFS, Ministry of Finance and Business Ombudsman Council will not cope with them in terms stipulated by the Code”.
Deputy Chairman of the Ukrainian Agrarian Council Mykhailo Sokolov explained how the new Code may adversely affect the development of stockbreeding in Ukraine. “Complete abolition of the special VAT regime is definitely a requirement of the IMF, which we cannot ignore. But then, it is necessary to provide targeted support to this branch, or save the special VAT regime for stockbreeding. The loss of the Russian market has put producers in a very difficult situation – the decline of livestock is 10 percent”.
According to Kostyantyn Kravchuk from the Institute for Economic Research and Policy Consulting, an approach to the reform of simplified tax system, incorporated in the draft Tax Code, will lead to equalizing the tax burden, i.e. establishing equal rates for small and large businesses. In addition, a positive development is ensured by some benefits. That is, the tax burden will be minimal for part of businesses with the lowest turnover (up to 50-60,000 UAH per year).
“It is a step towards overcoming shortcomings of a simplified taxation system (when it does not work to support small and medium businesses but to abuse), and creating a healthier competitive environment. But the problem is that for half of the businesses the proposal would mean tax increase, for some of them – even a 10-20 times increase,” said Kravchuk.
Among other weaknesses of the reform Kravchuk mentioned the use of cash registers that are problematic for small businesses.
