Ukrainian Tax System

The current situation.

The taxes for employers are too high, which makes Ukraine less attractive for investors and business development, in spite of its economic potential.

According to the World Bank’s research, which bases upon 10 main criteria important for conducting business, Ukraine takes the 174 place from 175.

Taking into consideration the criterion of easiness of tax payments our country takes the 152 place from 155.

Our government takes away from business about 49% of surplus value. At an average about 62% of individual income of our citizens are assigning to central budget and pension fund. Total tax load on the economy today accounts for 49% of GDP.

After all tax system of Ukraine is very difficult in assigning taxes. There are 26 national and 14 types of local taxes. Average company must pay 9-12 types of taxes. In order to discharge tax duty in Ukraine you should spend 2185 hours a year, that is 91 days.

The difference in the tax load between fields of industries and different territorial units is varied from 12 to 150% of added value. The amount of tax privileges accounts for nearly 9,5% of GDP, and non-payment of taxes – 34% of GDP.

We should take into account the fact those countries that have succeed in making “the economic miracle” (for example, Hong Kong, Singapore, Taiwan, etc.) had low taxes and liberal markets.

On the other hand, countries with high level of taxes and developed bureaucracy (Moldova, Uzbekistan, Armenia, etc.) are running through economic catastrophe.

The ways of reformation.

I think the following aspects should be changed:

First of all, the reduction in profit tax (now - 25%) upon juridical persons should take place.

Hong Kong can be the best example. Hong Kong is a country with the highest level of economic freedom, here profit tax accounts for 15-16%. These changes in the tax system of our country will be the easiest way of intensification the economic growth.

Simultaneously, our government should expose and correct weak spots in the procedure of tax aggregation in order to prevent deviation of tax payment.

Secondly, the most important aspect is the reformation of profit taxes upon physical persons. But the rate of profit tax has been already one of the lowest in Europe. That is why other methods for stimulation of solvency demand and creation of preconditions for increasing quantity of savings should be developed.

I think it is possible to attain this by establishing tax-free limit of citizens’ incomes on the level of living wage.

The possible way of making profit taxation not only effective, but also socially fair could be implementation of property tax. But, in Ukraine, this is impossible, because of the absence of cadastral base of land.

The third one, value added tax (20%) is a real problem for Ukraine, which requires profound reformation. Value added tax has several drawbacks.

1) This tax creates disharmony in the economy, by increasing prices and forming expenditures.

2) Value added tax is an example of regressive tax, when citizens with lower income bear heavier tax burden, because they spend most of their income for goods, where surplus value tax is, usually, included: clothes, provisions, etc.

3) Value added tax is a tax, which has the most inevitable influence over the increasing number of cash operations. The flow of finds is hindered, and as a cause of this the whole economic growth. After all, compensation of value added tax for exported products is often the reason for illegal operations with cash – in many countries, including Ukraine.

But, value added tax is a main source of income into the central budget (approximately 70%), which makes its abolition