Economist names four measures to avoid tax hikes
30 July 2024 13:27
EXCLUSIVE
There is an active debate in Ukraine about a possible tax increase, and, as usual, these discussions are initiated by the authorities – the government has prepared a draft law that dramatically increases taxes for citizens. The most recent trend in the government’s argumentation in favour of the tax increase is the argument that without it, there will be no money to pay for the military.
According to Roksolana Pidlasa, the head of the Verkhovna Rada Budget Committee, servicemen may be left without payments as early as September. To prevent this from happening, taxes need to be raised urgently, she said.
“To make this possible from 1 September 2024, we need to adopt them (tax changes – ed.) at the end of August. I think we will have this opportunity. We will try to reduce the timeframe for submitting amendments between readings to seven days,”
– ekonomichna Pravda quoted the MP as saying.
But does raising taxes alone really guarantee a full-fledged budget life? After all, most experts, entrepreneurs and ordinary citizens traditionally criticise tax policy. For example, Nina Yuzhanina, a member of the Verkhovna Rada’s Finance Committee, said that the tax authorities have turned paying property tax into a real quest.
“The State Tax Service reported that as of 01.07.2024, more than 3.2 million tax notices-decisions on tax on real estate other than land plots were issued in the amount of UAH 6.6 billion. At the same time, local budgets received UAH 1.6 billion. Wouldn’t there be more revenues if the State Tax Service were to become a real service and make paying taxes simple?”
– asks the MP.
So, does the government have no other mechanisms left but to raise taxes? These questions were answered by economist Andriy Novak in an exclusive commentary to Kommersant Ukrainsky
.
The expert believes that tax increases can be avoided if the issue of budget optimisation is approached systematically. He is convinced that there are several key areas that can significantly increase budget revenues without the need to increase the tax burden on individuals and businesses. And they all relate to the optimisation of current tax mechanisms and tax practices. Novak named four key measures in the tax system.
Revenue optimisation
“If we prohibit the use of any offshore companies in foreign economic transactions, i.e. close absolutely all possibilities of using offshore companies, this will additionally bring several hundred billion hryvnias to the budget of Ukraine every year.”
Cancellation of VAT refunds
“If we ban VAT refunds, or at least fictitious VAT refunds to firms that are not actually engaged in any exports, this will also bring several hundred billion hryvnias in additional revenue to the budget.”
Fighting smuggling
“Close all possible loopholes – black, white, grey, green – at customs. This is again hundreds of billions of hryvnias every year.”
Fighting schemes in the tax service
“Schemes in the tax office, the so-called twists and turns, also amount to hundreds of billions of hryvnias annually.”
According to the expert’s estimates, Ukraine could receive an additional trillion hryvnias a year by implementing these measures.
“In this way, we can not only avoid, but not even think about raising taxes in such an already difficult economic time as now, during the war. We do not need to burden small and medium-sized businesses and citizens with more burdens when most people live below the poverty line,”
– summarises Andriy Novak.
Only time will tell whether the Ukrainian government will heed such advice and look for alternatives to tax increases. After all, according to Pidlasa, it is far from certain that MPs will support the current government initiatives. So far, the Cabinet of Ministers has been active and determined to once again “optimise” business with initiatives such as the “white business club ” or a feedback platform.
