A new tax to be levied in Ukraine

In 2013 Ukraine could get another tax, that on turnover. This change is provided in the concept of ta­xa­tion reform, which is now being de­ve­loped by the State Tax Ad­mi­ni­stration, jointly with Ukraine’s Ministry of Finance. Ukraine’s pre­sident Viktor Yanu­kovych, too, supports the in­tro­duction of the new tax.

Global experience of turnover tax shows that it is introduced either instead of VAT, or instead of profit tax. Thus, it is supposed to make things easier for businesses and customers. In this case, the customer will pay a lower tax rate. The simplification of taxation is the goal which the authors of the Uk­rainian concept of taxation reform pursue. However, Ukraine wants to do it in its own way. Here are some details. The tax administration suggests that the 20 percent VAT rate be reduced to 7-12 percent. Instead, they suggest compensating budget revenues with a new tax of 2-2.5 percent. The new tax will be levied on customers in the event of purchasing goods or ordering ser­vices.

The initiators of this idea expect that the new taxation system will be simpler for businesses and individual customers. Yet it remains to be seen. The essence of this simplification is unclear: instead of one tax we get two. Of course, one can assume that the introduction of the new tax may help solve the problem with the corruption-stricken VAT. But will the solution be complete, given that the troublesome tax still remains?

The Day asked qualified experts to share their opinions about the idea of the turnover tax.

“WE NEED EFFICIENT ADMINISTRATING AND TRANSPARENT EXPENDITURE OF TAXES LEVIED ON BUSINESS”

Leonid KOZACHENKO, chairman, Council of Entrepreneurs under the Cabinet of Ministers of Ukraine:

“Today turnover tax is levied on small businesses, working on the basis of the simplified tax system. In fact, it is paid nearly by a million of entrepreneurs, and it works quite successfully in this sphere. Alas, we cannot see any more positive examples in other spheres. Only a couple of countries are trying to apply VAT and turnover tax on a parallel basis in their taxation practices, but this approach does not live up. In other words, it is ineffective.

“In my opinion, parallel application of VAT and turnover tax is inadmissible, since besides these two, business also pays income tax. That is, we get three different taxes now. It will be quite some challenge to see that they are fully paid. It is best to use the EU expertise: instead of introducing new taxes, they alter the tax rate system. So you will never hear about criminal proceedings initiated against, say, a French or German official on VAT-associated corruption charges.

“Ukraine is plagued by this problem, and it will not be solved with the introduction of turnover tax, because VAT will still be levied. In my view, tax officials should introduce effective administration of existing taxes, as well as transparent expenditure of the re­venues, instead of imposing additional taxes.”

“TURNOVER TAX IS ESSENTIALLY THE SAME INCOME TAX. WHY PAY TWICE?”

Tetiana ZATSERKOVNA, merited economist, board member, the Ukrainian Association of Auditors under the State Tax Administration and the Ministry of Finance:

“Turnover tax is not such a bad thing for taxpayers, since it is easy to calculate and pay. It leaves state happy, too, because trade tur­no­vers are more or less predictable, thus so are budget revenues. Yet there is one ‘but.’ Turnover tax should be introduced instead of VAT or profit tax. Otherwise, we gain no simplification of taxation rules. In other words, we must give a simple tax instead of a complex one.

“As far as I have understood from the concept of taxation system reform, it is only a matter of introducing an additional tax with a uniform rate for all. Yet such rates cannot be uniform for all areas of business, because there are different development priorities for each industry, and enterprises will have different profitability. I am of the opinion that either VAT or profit tax should be canceled, and only then turnover tax can be introduced.

“Let us look at what turnover tax is – actually, an equivalent of profit tax. The effective income tax and turnover tax both have the same taxation base: revenue. Why pay twice? If the authors of the conception do not take this remark into account, the additional tax will hit both businesses and consumers in the wallet. Business includes all expenses in the final cost of the product. Perhaps the awareness of this risk induced the authors of the taxation reform to suggest a parallel reduction of the VAT rate – in order to keep consumer prices from skyrocketing. How­ever, even in this case such format of taxation reform will not make it simpler and easier. Taxation will be simplified and transparent, when either VAT or profit tax is replaced with turnover tax.”

“THIS WILL BE AN EFFICIENT INITIATIVE, IF CORRUPTION-STRICKEN VAT IS SIMULTANEOUSLY CANCELED”

Natalia KOZHEVINA, board chairperson, Ukraine-wide Trade Union of Small and Medium Businesses “Yednannia”:

“The experience of small and medium businesses shows that turn­over tax is somewhat bigger, but it promotes better organization. It is hard to tell what impact it will have on big enterprises. Yet turn­over tax will doubtlessly be more efficient if corruption-stricken VAT is canceled simultaneously.

“Besides, there is another problem which awaits solution. Today, attitude towards business is a prio­ri negative: the official is always right, whereas the entrepreneur is always deprived of his or her rights. This is why the introduction of turnover tax should be accompanied by strict punishment of any manifestation of bureaucratic vo­luntarism. Only then can we see some progress.”

“FISCAL PRESSURE ON THE CONSUMER AND HI-TECH ENTERPRISES IS GROWING”

Serhii TERIOKHIN, first deputy chairman, parliamentary committee on finance, banking, taxation, and customs policies, MP for the BYuT:

“Henry Thoreau, an English philosopher, said: ‘If you want truth, simplify. But you must perceive the boundaries of simplification.’ Tur­no­ver tax was actively employed worldwide in the late 19th century. Certain elements were still present at the beginning of the 20th century. Yet in the course of the industrial revolution it gradually disappeared, as it hindered the development of production. Why?

“Turnover tax is levied at any stage of product sales. For example, ore has been mined, and a tax has to be paid in the course of selling this ore. Metal is smelted from the ore, and when it is sold, the same tax is paid again. And so on, and so forth. It is us, consumers, who pay this tax. So this initiative is pushing additional pressure on the consumer – but not him alone. High-tech business, the locomotive of progress, suffers too, because in this case the costs of its production will soar.

“In my view, there is an analog to this: sales tax. Such a system is used in the US, Singapore, Australia, and New Zealand. Its rate should be lower than that of VAT.”

“THE TREASURY WILL EARN APPROXIMATELY 50 BILLION MORE HRYVNIAS A YEAR”

Serhii PROKHOROV, first vice-president, Ukrainian Union of Industrialists and Entrepreneurs:

“Heated debates about the introduction of this tax are continuing. Turnover tax will help overcome the VAT corruption schemes, because the tax rate could be lowered to 7 percent. That is, the tax will be reduced, and thus lose all attraction as a source of illegal revenues. Instead, a modest turnover tax of 2-2.5 percent will allow to replenish the budget. The treasury will earn approximately 50 billion more hryvnias a year. It is suggested to simultaneously double the average sa­la­ries and reduce the single social payment, so that the population should not suffer a price shock.”