“You Can’t Eat and Drink the Living Wage”

The living wage for 2004 (UAH 386.73 for the able-bodied) was established by law this past May. Obviously, this doesn’t mean that it is paid out to Ukrainians at pay desks, since basically it is meant for calculating state welfare for the needy.

However, the tax service is applying it vigorously. Basing itself on this living wage, it establishes the amount of the so-called social tax privilege for individuals. In late September the State Tax Administration of Ukraine issued a letter discussing the relevance of extending the new living wage to legal relationships that appear in course of applying the law “On Individual Income Tax” adopted in May 2003. The tax service is worried about applying the social tax privilege. Thus, the document reads that throughout 2004 the living wage of UAH 365 should be used, i.e., the amount that was in effect since the beginning of the year.

The State Tax Administration believes that there are no legal grounds for changing the living wage in the middle of the budget (fiscal) year, since this macroeconomic indicator (UAH 365 for the able-bodied) served as the basis for creating state and local budgets for 2004, partly for defining the taxation entity (tax credit, social tax benefit, tax liabilities) for individual incomes, and has in fact been used by tax agents and taxpayers since January 1, 2004. Thus, the tax service believes that the new living wage should be applied as a standard for defining taxation entities only starting from the 2005 fiscal year.

Is it possible that with this singular view the tax service is throwing a monkey wrench into the government’s work? Moreover, does it have a right, even with the best of intentions, to correct at its own discretion the letter of the law, or, specifically, the date when it comes into force?

In answer to these questions, president of the Tax Advisors’ Association of Ukraine Leonid Rubanenko told The Day, “Of course, the Tax Administration has no such authority. The letter has nothing to do with economic issues; this is purely an administrative approach. They saw that the new living wage law infringes upon their interest and made this decision. From the viewpoint of the budget it’s a good decision. But there are other similar issues, for instance, payments from the Social Insurance Fund to people who have no insurance. I, as an employer, pay for the insured, but this money also goes to the uninsured for whom the budget is supposed to pay. But we will deal with all this only after the election campaign ends. We don’t want to add fuel to the fire right now.”