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Tax on withdrawn capital - new economic miracle in Ukraine?

Author : Oleksandr Okhrimenko

The tax on the withdrawn capital, according to the idea of ​​Petro Poroshenko, aims to replace the profit tax
13:44, 10 July 2018

Read original article at 112.ua

112 Agency

The President of Ukraine introduced a bill No. 8557 "On Amendments to the Tax Code on the Tax on Withdrawn Capital" to the Verkhovna Rada. Some experts and initiators of this document promise that this law will lead to an economic miracle in Ukraine. And what do you think?

The bill on the tax on the withdrawn capital, according to the idea of Petro Poroshenko, aims to replace the profit tax. As a result, the business will not pay profit tax but will have to invest all the money that it previously had to give to the state budget, in business development. The tax appears only when the businessman has decided to pay dividends or to close the company and divide the assets between the owners. In theory, everything looks interesting. And now a couple of facts to understand is this bill good or bad.

At the moment, the share of profit tax in the revenues of the state budget of Ukraine is about 15%. This is more than 100 billion UAH for the year. It is clear that the abolition of the profit tax will lead to the fact that it will be necessary to compensate for the losses in the state budget. As an option, authorities noted the increase in VAT from 20 to 22%. This really will compensate for the loss of income from income tax. Although, prices will grow even more in Ukraine.

In theory, it is assumed that in the future, businessmen will pay more dividends, and, thus, fill the state budget with the tax on the withdrawn capital. Perhaps they will do this, although the hope is weak. Most likely, new schemes will appear, designed to "wash out" income from the business without paying dividends.

According to the draft law on the tax on the withdrawn capital, it is intended to create tax for dividends and other types of withdrawn capital at a rate of 15%, but there is a loophole that if interest on debt obligations to non-residents is paid, then the tax is 5%, and it’s if this non-resident is connected with the Ukrainian company. And if this non-resident is not officially associated with the Ukrainian company, there are no taxes at all. And there are a lot of schemes like that. It will be possible to cunningly list the type of expenses for offshore and then pay out in offshore dividends without taxes. Most likely, the tax on the withdrawn capital will simply lead to the fact that the amount of this tax in Ukraine will be so miserable that no one will seriously treat it, so we will simply have to fill the state budget at the expense of higher VAT taxes.

As for the idea that the business will invest more money in business development and reconstruction, it is more likely a hope than a real assessment of the situation. In Ukraine, now there is no problem for businesses to invest money in development. And indeed, business does this if it is profitable for it. In general, the problem of business development and production reconstruction is not in taxation, it lies in the general state of the country's economy and prospects for the future. Business actively invests money in development, if it is economically advantageous for it or new opportunities open up. Now the business is actively investing money in agriculture and mining, as well as in trade and construction of ports. But it is unlikely to expect that business will invest in ferrous metallurgy or chemistry if these industries have so many unresolved problems.

And finally. Currently, the tax on the withdrawn capital is used in Estonia, Latvia, and Georgia. No normal country such as Germany or the US even tried to impose this tax. But if you look at the volume of investment in the business of Estonia or Georgia, you can only laugh. Businessmen all over the world are quietly paying a profit tax, and do not believe that this is hampering investing money in business development. In Ukraine, instead of not hampering the business work and removal of VAT accounts, we constantly start experiments. Do you remember the experiment with a drop in ERUs twice and talks about "salary whitening"? All failed. Let's see what will happen to this venture. We love experiments.

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