Igor Bilous: Tax system reform can become a locomotive for changes in all sectors of economy


9 September 2014, Kyiv – Ukraine needs decisive changes and rules of the game renovated especially in the tax system. “We suggest a new concept for the tax system that will become a huge leap ahead and quite possibly a locomotive that will take the state forward and will cause a domino effect for changes in various sectors of economy,” informed the Head of the State Fiscal Service of Ukraine Igor Bilous at a briefing in the Ukraine Crisis Media Center.

According to Mr. Bilous the basis for reforms is in transparency, simplicity, equal opportunities for all tax payers, equal relations between the state and business. Decrease of the number of taxes, amounts of tax reports and payments, decrease of rates and simplification of administering procedures are the principles for reforms, it is expected that the final outcome will be the decrease of corruption level, promotion of investment, increase of working places, legalization and increase of salaries.

Igor Bilous listed main suggested changes many of which he dubbed revolutionary:

–            Decrease of number of taxes from 22 to 9, part of them will be annulled, part transformed.

–            Annulment of two types of accounting, simplification of income tax payment system, establishing unified income tax reporting based on accounting standards. 95% of companies will define corporate income tax exclusively based on the data from financial reporting. And only for 5% of companies with annual corporate income over UAH 20 mln 3 instead of 49 differences in tax rate will be left, it will ensure transparency of tax calculation mechanism and will enable preventing manipulations with calculations of corporate income tax, as the tax inspector will not be defining taxable base unilaterally.

–            A decision was made to considerably decrease incentives for corporate income tax that lead to considerable losses of revenue as they came as a result of lobbying of certain financial-industrial groups. The number of sectors in which it will be possible to grant corporate income tax incentives will be reduced. Thus, it has been suggested to include in the list extraction of oil and gas, mechanical engineering for agriculture, military industrial complex and companies founded by non-for-profit organizations of disabled. They will be only able to get this incentive if the income freed from taxation is directed to develop own production capacities.

–            E-administration of VAT will be introduced from the beginning of the next year, it will enable quick VAT reimbursement, transparency and decrease of number of thorough checks.

–            Considerable cut of unified social contribution has been suggested. There are big expectations as to the salaries legalization and as to creating motivation for their increase. It is expected that these measures will lead to the increase of payments and reimbursement of losses suffered due to decrease of the unified social contribution rates.

–            Decrease of number of reports and payments per year due to introduction of unified reporting period – specified quarter for majority of taxes except for VAT. It is also expected that the submission time for reporting documents will be decreased as a result of introduction of a single window for reports submission, in particular tax, statistics and unified social contribution reporting.

–            Instead of 6 groups of payers for unified tax 3 were suggested: natural persons with income up to UAH 300 thousand instead of UAH 150 thousand, with income up to UAH 15 mln as well as natural persons and legal entities with income up to UAH 20 mln. Apart from that it was suggested to considerably decrease the rate and have it established at level 2% for VAT payers and at 4% level for non-payers of VAT.

Tax reform for agricultural sector as a priority one for Ukraine is currently considered separately. For the first time the mechanism for support of small and middle business has been worked out in detail. Considerable decrease of the maximum rate for unified tax was initiated, for some groups of companies it will mean 3 times decrease. Moreover it was suggested to lift tax checks on unified tax payers and economic operators with income up to UAH 20 mln a year except for cases when they’ve lodged a request, when there’s a court decision or it is stipulated by the criminal code.

Important novelty is a zero tax rate for a one-time declaration of assets of natural persons, it will enable to legalize undeclared assets and income of Ukrainian citizens. “We are making a balanced step towards Europe by suggesting favourable business environment as well as all possible preconditions for bringing the economy out of shadow. We realize that these novelties will meet considerable resistance, however we are sure that by adopting them we shall lay the basis for actual changes in the country,” said Mr. Bilous.