Taxation issues

Ukraine’s taxation system is special in that taxpayers are burdened not so much with the high level of taxes as with uncoordinated regulations, chaotic and slapdash changes, and legal nihilism on the part of lawmakers and controlling bodies.

For example, out of three taxes that make up the foundation of Ukraine’s taxation system, the income tax is the most imperfect one, compared to the similar taxes in the countries with market economies. When levying taxes on the profits made by legal entities, most of the foreign countries place emphasis on forming the tax incidence and tax benefits in such a way that taxation reliefs are linked to the company’s investments into enlarging its business. At the same time, the taxed income is calculated using the accounting data after making minor adjustments.

In Ukraine, however, in order to define the taxed income, the company has to make a parallel calculation of all the operations according to special (non-accounting) rules, whereas the tax revenue is solely a calculation quantity and has little to do with the income in terms of bookkeeping. So it appears that whereas, for example, income tax rates reach up to 40-45 percent in Western countries, in Ukraine it is at 25 percent. Thus, despite the higher nominal rate, the European companies have better opportunities for expansion than Ukrainian businesses.

The government promises to improve the situation by passing a new tax code. However, there is little success along this line. Lawmakers have been working for nearly 10 years on this code, and different draft codes that have been offered are rather an indication of the divergence in opinions on what the document should be.

What Ukrainian companies need is legislation on income taxation that will, first, enable companies to calculate their taxable income without unnecessary difficulties and, second, enable the taxation agencies to check easily whether the tax was calculated and paid correctly. The system of taxation benefits should offer a possibility for an absolutely legal reduction in taxation duties in exchange for an expansion of the company’s business. Taking into account the special inclination of our state authorities to interpret legislation in their interests, this law should be worded with maximum clarity and should not contain any ambiguous terms.