Ukrainian tax injustices and their consequences

Author : Viktor Pynzenyk

Source : 112 Ukraine

Ukraine's draft law on the tax on withdrawn capital, which is going to be considered this week, provides for the abolition of income tax, replacing it with the taxation of only those incomes that are taken from the turnover of the enterprise
22:41, 7 November 2018

112 Agency

Imagine that you have started your own first business and invested in the Ukrainian economy. You have invested funds from income from which income tax and military tax were paid before (total 19.5%). Or let us take a simple option, usually chosen by our compatriots, let us make a bank deposit. The latter directs your funds to lend working capital or investment projects of the enterprises. In the end, you invest in the economy through a bank, but with the income received (interest), you pay the same 19.5% again, regardless of the purpose of the money usage.

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Why do I explain such trivial things? Because it turns out that such a fate (paying taxes) is not intended for everyone. The draft law on the tax on withdrawn capital, which is going to be considered this week, provides for the abolition of income tax, replacing it with the taxation of incomes taken from the turnover of the enterprise. In other words, the tax on income (in this case, profit) does not have to be paid if the funds remain in the enterprise. But why those who first invest their own funds are not exempted from taxes? Because it is a second-class investor, right? Why don't they exempt from taxes the interest on deposit when they are capitalized, that is, they remain in the bank? Is this person a wrong investor? An average teacher or a doctor, buying Ukrainian goods, ultimately also directs funds to the economy, having paid income tax and war tax before this.

I draw attention to another important aspect of this proposal - the budget. Any decision to reduce taxes is a good thing. Under two important conditions. The first. When it applies to EVERYONE, not to the FAVORITES. The second. When it is linked to adequate cost reduction. We have neither the first nor the second. Moreover, taking into consideration the second condition and without making this decision, we need to cut costs, because we continue to accumulate this deficit, that is, our debt is growing. The draft budget for next year provides for a gap of 3 billion USD. This gap takes into account income tax revenue in the amount of 4 billion USD (for the consolidated budget). 

I would like to remind you that the recent two-fold decrease in SSCs (single social contribution) was balanced by a two times decrease in the real size of the minimum pensions. It is not a secret that now the minimum pension is almost two times smaller than the norm established by law. The country had never been in that situation before. And what about reverting back to this level (once it has to be done) requires funds, which requires hundreds of billions of hryvnias? Who will pay this? A teacher, a doctor or the same pensioner? Judging by the mood, only a few politicians care.

This solution - the law on the tax on withdrawn capital - may be beneficial to some business people. But I want to focus on the following. After such decisions, if you ask the specialists on the exchange rate of the dollar (inflation) in a year, two or five, they would answer: “I don’t know.” And this is an honest, a correct answer. The second correct answer is, “ask the fortuneteller.”

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