Reanimation package of reforms > News > International experience of reforming of the corporate taxation and its use in Ukraine

International experience of reforming of the corporate taxation and its use in Ukraine

The participants of the discussion debated the current state of profit taxation, a new model of distributed profit taxation, and the reform of property tax as a compensator for budget losses.

Volodymyr Dubrovskiy, senior economist at CASE Ukraine, RPR expert, has presented a model of corporate tax reform. The suggested concept presupposes a transition to distributed profit (dividends and equivalent payments), as well as modification of property tax. For more details, please see:

https://docs.google.com/presentation/d/1xgqg7zV-QeiVDOJW8VqeokWrgbfJJ34tKgqeO91LeDU/edit?usp=sharing

He said that, in the opinion of the RPR experts, tax system is one of the main pillars of the Ukrainian corruption, in particular due to a huge level of discretion (a possibility to “settle issues” at one’s own discretion) in the process of tax administration. Lately, certain progress has been achieved in the issues of VAT administration and reduction of excessive tax burden on labour. However, corporate income tax, discretionary by the very nature of its tax base, is yet to be reformed.

Structural distortions – with excessive direct taxation (especially in part of wages and income of small business owners who pay the single social contribution) and almost absent property taxation, as well as excessive labour taxation with moderate burden on capital, is another problem of the acting tax system. Both the former, and the latter are wholly inconsistent with the national specificity and the strategic goal of building an innovational post-industrial economy.

Dr. Janusz Szyrmer, professor of Harvard and Oxford Universities, head of the tax reform project in Armenia being implemented by Deloitte company, has told about the numerous discussions of the possibility of standardizing tax systems in different countries and said that he had come to a conclusion that Ukraine has important specificities, such as deeply rooted corruption, which have to be taken into account. In his opinion, corruption vulnerabilities have been minimized in the concept suggested by the RPR experts.

Oleksandr Shemiatkin, expert in tax and customs reform, stressed that transition to the model of tax on distributed income not only simplifies tax administration and reduces discretion, but should also decrease the outflow of capital and increase domestic investments.

Tetiana Shevtsova, expert in tax and customs policy, said that representatives of the Ministry of Finance claim that introduction of the distributed profit model can negatively affect tax revenues, but many experts have not noticed any considerable reduction. Clear-cut principles of administration and tax payment should ensure a proper amount of taxes collected.

Andriy Zhurzhiy, Ukrainian MP, said that many MPs endorse introduction of the distributed profit model, while the Ministry of Finance does not. He suggested explaining the benefits of the model and looking for compromise solutions and compensators.

Distributed profit is a resource for investments.

“As to reforming the property tax, in my opinion, it is an important reform, but it should be implemented simultaneously with the reform of the profit tax.”

Volodymyr Kotenko, EY partner, head of the tax law firm in Ukraine, drew attention of the experts to the fact that the model of distributed profit taxation has several drawbacks, so this issue should be carefully analyzed. “There might be alternative variants, implementation of which might yield necessary results.”

Pavlo Kukhta, economist, advisor at the Economic Strategy Center, supported the stand of V.Kotenko concerning the analysis of possible alternatives and said that, in his opinion, the suggested model will not resolve the issue of discretion due to certain issues.

“In any case, this system should be implemented only with compensators. This issue should be discussed.”

Mykhailo Sokolov, expert of the Reanimation Package of Reforms, said that he supports the distributed profit taxation model and suggested moving from the discussion of the idea to the mechanisms of its implementation.

Volodymyr Dubrovskiy drew attention of the audience to the fact that introduction of the profit tax model is a political-economic issue, while independence of the willfulness of the revenue service officials is a continuation of the Maidan ideas.

Ruslan Chornyi, editor-in-chief of FinClub news agency, has summed up the discussion:

– Property tax should be urgently reformed; this issue needs further research, statistical data, and estimates;

– A distributed profit tax should be introduced, as it is beneficial for our country. The remaining issues should be discussed and a common model should be worked out.

Participants of the discussion have agreed to further cooperate to develop a common concept.

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