Lead expert

Dubrovskyi Volodymyr
vlad.dubrovskiy1@gmail.com
Мельничук Віталій
melnychuk9@gmail.com

Civil Society Organisations:

  • Centre for Economic Strategy
  • Institute for Economic Research and Policy Consulting
  • CASE-Ukraine
  • Institute of Socio-Economic Transformation
ISSUES TO BE RESOLVED BY THE REFORM
Ukrainian tax system is characterized by the following deficiencies:
∙ Tax compliance is unnecessarily complicated. According to the World Bank’s Doing Business Report, in 2015, a Ukrainian firm spent on average 350 hours for preparation and submission of tax reports and payments. In the region of Europe and Central Asia the corresponding (average) indicator constitutes 232.7 hours, in the OECD countries — 176.6 hours.

  • ∙ Tax authorities are plagued with corruption: according to the «Business corruption perceptions index» (the survey research held by TI-Ukraine, Gfk, PwC and PrivatBank in 2015), 26.7% of enterprises admitted some forms of it in their contacts with tax bodies.
  • ∙ The share of the GDP redistributed through public finance is excessive.
  • ∙ High personal discretion embedded in the design and implementation of tax legislation makes payments unpredictable, creates opportunities for corruption, and distorts competition.

Problems at the institutional level. The state fiscal service performs a number of irrelevant functions. In particular, it develops the tax policy and drafts the bills, provides official elucidations of legislation, etc. This provides the tax authority with extensive discretionary power in interpretation of the law and imposing of repressive actions on the payers, which results in high level of corruption.

Problems in administration of taxes.Frequent changes in legislation accompanied by lack of timely methodological, consultative and technical support cause errors for which the taxpayers often get sanctioned. Many of the norms stipulated in the tax legislation are contradictory and obscure; they need systematization. Tax officers are endowed with broad opportunities of discretionary (selective, at their own will) enforcement of the legislation. In addition, official elucidations often misinterpret acting legislation, contradict to it, or do not correspond to the economic essence of business operations. Legislative acts contain too many indirect norms. As a result, numerous issues of taxation and related topics are regulated by the bylaws.

Problems at the macroeconomic level. Excessive tax burden is closely tied to excessive redistribution of gross domestic product through public finance.

Problems with the quantity and structure of taxes.The structure of taxes does not correspond to national peculiarities and development goals. In particular, direct taxes (especially labour taxes) play disproportionately considerable role as for the country suffering from systematic corruption, while the role of taxes on property and land (capital tax) is insignificant. For some taxes the procedure of payment involves advance payments, overpayments, or freezing a part of working capital of the firm.

GOAL I. SIMPLE, TRANSPARENT AND PREDICTABLE TAX SYSTEM THAT REQUIRES MINIMUM TIME FOR CALCULATION AND PAYMENT OF TAXES
  1. Create a transparent mechanism for the VAT refund through introduction of a single register of applications for VAT refund.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

  1. Improve the VAT administration in order to mitigate erosion of the working capital of enterprises caused by acting system of the VAT accounts through introduction of a double overdraft, extension of the term for tax invoice’s registration, etc.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Continue to cut the payroll tax (single social contribution).

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Move from taxation of net profits to the tax on withdrawn capital, while compensations of budget revenue losses to be done through improvement of taxation of the enterprise property.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Improve enterprise property taxation by making it more revenue-effective and less discretionary.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Introduce a single account for all tax payments, except the VAT.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

  1. Introduce e-services for taxpayers: e-cabinet, electronic receipt register, and electronic excise label register.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

  1. Prohibit opening criminal proceedings against the taxpayers before they fail to pay their accrued tax liabilities agreed with tax authorities — in order to decrease the opportunities for extortion.

Decision-making authority: Verkhovna Rada.

  1. Increase the SFS’s (State Fiscal Service) openness through regular publication of aggregate data on tax compliance by categories of taxpayers, and detailed reports of activities of the Service.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Move from tax exemptions (mainly in the VAT and local taxes) to the targeted assistance to low-income households.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance

  1. Introduce the patents for sole proprietors in order to simplify their registration, accounting, taxation, reporting and quitting of business activity.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Prohibit the auditing bodies from cancelling the accrued tax credit due to formal reasons. Reconsider the amounts and reasons for application of fines.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Improve the mechanisms of control over transfer pricing, develop the measures aimed at discouraging of the aggressive tax planning that involves tax havens (so called «de-offshorization»).

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Prohibit the supervising tax bodies from unilateral terminating the agreements on recognition of electronic documents (or limit such possibility).

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

GOAL II. THE LEVEL OF GDP REDISTRIBUTION THROUGH THE PUBLIC FINANCES DOES NOT EXCEED 37% - IN ORDER TO CREATE OPPORTUNITIES FOR SUSTAINABLE ECONOMIC DEVELOPMENT
  1. Conduct fiscal policy aimed at decreasing the ratio of total expenditures of the public sector to GDP to 37% in the medium-term period.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Introduce fiscal rules that would limit the share of GDP’s redistribution through public finance.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Optimize the structure and size of 2017 Budget expenditures.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Establish the practice of full-fledged medium-term state budget planning.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Finish the verification of social payments and pensions in order to increase the efficiency of budgetary spending.

Decision-making authority: Cabinet of Ministers, Ministry of Finance.

  1. Reform the state-governed Social Security Funds, in particular, to cancel mandatory social insurance against workplace accidents.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Reform the budgetary process, particularly, improve the program-targeted method of financing.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

GOAL III. STATE FISCAL SERVICE IS TRANSFORMED INTO
A SERVICE PROVIDER
  1. Divide the rule-setting, service-providing and auditing functions performed by the State Fiscal Service between two separate public institutions.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Deprive the SFS of non-relevant law enforcement functions and functions of state policy formation.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Dissolve the tax militia and establish a separate state body for financial investigations (finance police).

Decision-making authority: Cabinet of Ministers, Ministry of Finance.

  1. Develop and establish a system of key performance indicators (KPI) for better grounded assessment of the SFS’s work performance.

Decision-making authority: Verkhovna Rada, Cabinet of Ministers, Ministry of Finance.

  1. Strengthen the responsibility of the state before taxpayers for the losses caused by unlawful actions (or inaction) of tax officials, particularly through constant monitoring of elucidations, inspections and court rulings.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

  1. Introduce the mechanism for preventing the conflict of interest for inspections, as in case of family relations among the officials of auditing bodies and the taxpayers.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

  1. Introduce a possibility to cancel the results of inspection in case of violations during its scheduling and/or conduct.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

  1. Limit the rights of auditing bodies to make ungrounded requests to taxpayers.

Decision-making authority: Verkhovna Rada, Ministry of Finance.

ADDITIONAL INFORMATION

Group experts

  • Antoshchuk Larysa
  • Betlii Oleksandra
  • Blinov Andrii
  • Cherkashyn Viacheslav
  • Dubrovskyi Volodymyr
  • Getman Oleg
  • Ivchenko Olena
  • Kharkovina Oleksii
  • Kolpakchy Oleh
  • Kukhta Pavlo
  • Mykhailenko Dmytro
  • Neskhodovskyi Illia
  • Oliinykov Yevhenii
  • Potopalska Tetiana
  • Sokolov Mykhailo
  • Vyshlinsky Hlib
  • Yakymchuk Nataliia
  • Yankovskyi Pavlo
  • Zhukova Olena
TOP