Ukraine’s President has dispelled the illusion concerning distributed profit tax. And this is good.
Nobody likes to pay taxes. Therefore, there is a natural desire to remove the income tax and impose a distributed profit tax. That is, in fact, simply abolish the income tax. But this is an expensive pleasure, which Ukraine simply cannot afford. IMF says it. And the Ukrainian authorities know about this. And for the first time, they have publicly said we should put away our high hopes for unrealizable things.
Former president Poroshenko promised to impose distributed profit tax. Poroshenko knew that the IMF is against it. Poroshenko knew that we needed cooperation with the IMF. But he promised it, knowing that this promise cannot be fulfilled.
Zelensky promised to implement a tax on the withdrawn capital. Zelensky learned that the IMF is against it. Zelensky found out that we needed the IMF. And Zelensky publicly said that this promise cannot be fulfilled.
There is one difference between these two cases. Zelensky did not give false hope, promising some things that he was definitely not going to fulfill.
He cannot afford such a solution. Ukraine cannot afford. And the desire of lobbyists of distributed profit tax to get it at any cost, even at the cost of losing macroeconomic stability, looks extremely irresponsible.
Tax on capital is akin to tariffs. Any politician in opposition can promise to lower tariffs. But having come to power, he will never do that. Because the issue price is too high. And right-wing populism (like, let's cancel taxes) is not much different from left-wing populism (let’s do everything in a cheap way”).
The president has already refused two promises that were attributed to him. And this is good. Because both promises looked like destructive populism.
And yes, this problem has one simple solution. Why is the IMF against it? Because it sees that as a result, there would be a loop in the budget of more than 1,8 billion USD. Where does this loop come from?
Big business will stop paying income tax. So what can be done?
Impose a distributed profit tax only for small and medium-sized businesses, because the effect of such a budget will be almost zero. They pay almost nothing. But this proposal does not suit the initiators of the tax on derived capital, who publicly say that they protect the interests of only small and medium-sized businesses. Paradox, right?
And it turns out that the initiative of the distributed profit tax is lobbying of big business, oligarchs and co, who do not want to pay taxes. Soon they would be forced to abandon offshore companies.
It would happen in the framework of the global fight against offshore companies. And a couple of billions of dollars will go to the Ukrainian budget annually. A good compensator for the launch of the Nord Stream 2, by the way. And, of course, no one wants to give this money.
Can we understand such a desire? No one in the world ever likes to pay taxes. But this does not mean that we have to avoid paying them.
Does Ukraine have any problems with its taxes? Of course. And the main problem with the complexity of administration and the tax itself. This problem must be solved. Reducing primarily the rent of corruption.
And then, in the future, when we have a budget surplus and rapid economic growth, we can talk about tax cuts. And for this to happen, we just have to take and execute the IMF program.