Pavlo Sheremeta: tax burden on salaries has to correspond to the European level


Kyiv, August 7, 2014  – Pavlo Sheremeta, Ukrainian Minister for Economic Development and Trade, considers unacceptable current task burden in Ukraine and stresses on the need for reforms. Such statement he made at the briefing in Ukraine Crisis Media Center when commenting on the tax reform concept suggested by the Ukrainian government yesterday. “It is impossible to reform the economy without reforming the tax system, especially when it comes to such imperfect tax system as the Ukrainian one. As a state we compete for business, investment and people. Nevertheless current tax burden on salaries in Ukraine is absolutely non-competitive. In our system taxes constitute 55% (income tax and unified social tax) while the average level in Europe is 36%. Each country is struggling to attract investment but for many countries it is not as critical as it is for us. Therefore in order to attract investment we have to offer better conditions. In my opinion tax burden on salaries has to correspond at least to the average European level that’s why we suggest considerable cut of the unified social tax on salaries exceeding the current minimum level. It is also suggested to introduce progressive scale for income tax according to which the tax rate will depend on the salary amount,” noted Pavlo Sheremeta.

“Apart from that we plan to decrease the number of taxes and harmonize financial and tax accounting. The companies will keep their records in line with the international standards, corrected standards related to depreciation, forming of reserves and financial operations will be suggested,” he added.

According to Mr. Sheremeta: “The suggested reform will not influence the overall budget revenues. When planning it we did not take into account percentage of companies that will come out of shadow as we are not able to foresee these numbers. On the one hand we are aware that approximately half of our economy is in shadow, on the other hand we realize that half of the economy will not come out of shadow immediately. That’s why the reform was planned based on the fact that the effect on income will be stable. The aim of this tax reform is first of all to decrease the tax burden, “black” salaries amount, these actions are expected to bring the economy out of shadow”.

The expected outcomes of the reform are the decentralization of tax and budget systems as well as filling in local budgets with actual resources. As the Minister noted: “It is necessary to establish unified rules as to the distribution of taxes among the budgets. Taking income tax out of the local budget as it now happens in Kyiv should not happen.”

As to the terms to conduct the tax reform it is planned to hold a discussion of the concept and to introduce draft law on changes to Ukraine’s Tax Code for Parliament’s consideration until 2 September. If the draft law in question will be voted in by the MPs in the nearest time, it will come into force starting from 1 January 2015.

At the same time Pavlo Sheremeta noted “it’s important to act without waiting for the changes to legislation and start re-establishing trust between the business and the state – fiscal bodies namely, by changing their structure, quantity, internal processes and undoubtedly particular persons that work there.”