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CONCEPT For reforming the tax system of Ukraine

CONCEPT For reforming the tax system of Ukraine. Cutting taxes and fees. Current taxation system : 22. Proposition : 9. Abolished : Fee for certain types of entrepreneur activity ( currently paid by 123 000 subjects )

edward-cleveland
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CONCEPT For reforming the tax system of Ukraine

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  1. CONCEPT For reforming the tax system of Ukraine

  2. Cutting taxes and fees Current taxation system: 22 Proposition: 9

  3. Abolished: • Fee for certain types of entrepreneur activity(currently paid by 123 000subjects) • Fee as a surcharge for the natural gas to be paid by consumers of all types of ownership • Rent for transporting oil and its by-products via main pipelines and oil networks, transit transporting gas and ammonia through the territory of Ukraine • Parking fee for vehicles • Tourism tax • Fee for viticulture, horticulture and hop growing Cutting taxes and fees

  4. Transformation: Cutting taxes and fees

  5. Conversion of taxes from national to local: • Real-estate tax • Fixed agricultural tax Cutting taxes and fees

  6. Single taxbased on standard financial reports • Taxation basis: financial result defined according to standard financial reports, adjusted for a limited number of tax differences. • Number of taxable differences reduces from49 to3: • Depreciation • Forming reserves • Financial operations (securities transactions,interest cost) • Including differences regarding: expenses for education, repair, business trips etc. to be abolished Reform of corporate profit tax

  7. Quantity proportion Earnings proportion criterion 1: Annual amount of earningsunder UAH 20 mln Reforming of agrarian sector criterion 2: Farmland areaunderha 3 thd Quantity proportion Area proportion

  8. CONCEPT for reformingwage taxin Ukraine

  9. Background for reforming SST: Statistics of Ukraine and UN TAX LOAD ON WAGES (INCOME TAX + social insurance), %, 2013 Generaltaxload* onsalary incomesinUkraineexceeds1.5 times those in EU-27 UA 54.5% EU 36.1% * Sum of total wage taxes against total salary incomes Plain decrease of rates of SSTand IITto average EU level would significantly reduce cash flow fromSSTand IIT 9

  10. Background for reformingsalary taxes Structure of salary incomesin 2013 INCOME RATE, % Structure of salary incomesin 2013 EMPLOYMENT RATE, %. In Ukraine over 70% of employed people get monthly payment less than 3 minimum salaries (МЗП). Incomes of these people make up over 50% of total salary incomes.. 10

  11. Single social tax (SST): reform patterns Current model New Model 1 New Model 2 Payroll Payroll Payroll Accruing SST at a rate from 36.76% to 49.7% (depending on risk class) Fixed SST At a rate 37%of minimum salary (in 2014 – UAH450.66 ) Fixed SST At a rate 41%of minimum salary (in 2014 –UAH499.38 ) Withholding SST from salary at 3.6% rate SST percent rate 15% charged on salary exceeding minimum salary SST percent rate 19% charged on salary exceeding minimum salary Withholding SST from salary at 3.6% rate Withholding SST from salary at 3.6% rate Incomes amount UAH 189 bln Incomes amount UAH 143.5 bln Incomes make UAH 141.1 bln

  12. Wage taxation: IIT and SST Example based on IIT rules and offered SST patterns UAH

  13. IIT (individual income tax): Model 1 Current model Proposed model Monthly salary IIT rate Monthly salary IIT rate Under 10 MS (minimum salary) in 2014 – UAH 12180 15% Under 10 MS (in 2014 – UAH 12180) 15% From 10 MS 2014 – UAH 12180 17% Charged on excess sum 20% Charged on excess sum from 10 to 17 MS in 2014 – fromUAH 12180 to 20706 25% Charged on excess sum Over 17 МS in 2014 – overUAH 20706 IIT earnings in 2013madeup UAH 58.9 bln Additional earnings can amount around UAH 3.5 blnor 5.7%

  14. IIT (individual income tax): Model 2 Current model Proposed model Monthly salary IIT rate Monthly salary IIT rate Under 10 MS (in 2014 – UAH 12 180) 15% Under 10 MS (in 2014 – UAH 12 180) 15% From 10 MS (in 2014 – UAH 12 180) 17% Charged on the excess sum 20% Charged on the excess sum from 10 to 40 MS (in 2014 – fromUAH 12 180 to 48 720 ) 25% Charged on the excess sum From 40 MS (in 2014 – over UAH 48 720) IIT earnings in 2013madeup UAH 58.9 bln Additional earnings can amount around UAH 2.5 blnor 4.3 %

  15. IIT (individual income tax): Model 3 Current model Proposed model Monthly salary IIT rate Monthly salary IIT rate Under 10 MS (in 2014 – UAH 12 180) 15% Under10MS (in 2014 – UAH 12180) 10% from 1 to 10 MS (in 2014 – fromUAH 12180 to 12180 ) 15% From 10 MS (in 2014 – UAH 12 180) 17% chargedon excess sum from 10 to 40 MS (in 2014 – from UAH 12180 to 48720 ) 20% chargedon excess sum from 40 MS (in 2014 – over UAH 48720 ) 25% chargedon excess sum IIT earnings in 2013make up UAH 58.9 bln Additional earnings can amount around UAH 4.7 blnor8 %

  16. IIT (individual income tax): Model4 Current model Proposed model Monthly salary IIT rate Monthly salary IIT rate Under 10 MS (in 2014 – UAH 12 180) 15% Under 5MS (in 2014 – UAH 6090) 15% From 10 MS (in 2014 – UAH 12 180) 17% charged on excess sum 20% charged on excess sum from5to 17 MS (in 2014 – from UAH 6090to 20 706 ) 25% charged on excess sum Over 17 MS (in 2014 – UAH 20 706) IIT earnings in 2013make up UAH 58.9 bln Additional earnings can amount around UAH 5.1blnor8.5%

  17. IIT (individual income tax): Model5 Current model Proposed model Monthly salary IIT rate Monthly salary IIT rate Under 10 MS (in 2014 – UAH 12 180) 15% Under3MS (in 2014 – UAH 3654) 15% Over 10 MS (in 2014 – UAH 12 180) 17% charged on excess sum 20% charged on excess sum from3to 17 MS (in 2014 – fromUAH 3654to 20 706) 25% charged on excess sum Over 17 MS (in 2014 – fromUAH 20 706 ) IIT earnings in 2013make up UAH 58.9 bln Additional earnings can amount around UAH 8.9blnor15.2%

  18. IIT (individual income tax): Model6 Current model Proposed model Monthly salary IIT rate Monthly salary IIT rate Under 10 MS (in 2014 – UAH 12 180) 15% Under1MS (in 2014 – UAH 1218) 15% From 10 MS (in 2014 – UAH 12 180) 17% charged on excess sum 20% charged on excess sum From1to 17 MS (in 2014 – from UAH 1218to 20 706) 25% charged on excess sum Over 17 MS (in 2014 – over UAH 20 706) IIT earnings in 2013make up UAH 58.9 bln Additional earnings can amount around UAH 14.7blnor25 %

  19. Individual Income TAX: Unification of passive income rates It is offered to unify IIT rates for all types of passive incomes: in particular: Passive incomes considered as dividends paid to individuals who don’t pay income tax should be charged at 15 % IIT rate instead of 5% IIT earnings in 2013makeup UAH 0.7 bln Additional earnings can amount UAH 1.5 bln

  20. Single accounting period – quarter – regarding principal taxes: • Income tax, IIT, VAT, SST, Excise, Environmental tax, etc. • Effect – reducing number of reports and payments a year: • Cutting expenses of the state and business resources for administration of taxes • Simplifying conditions to pay taxes, improvement the presentation of Ukraine in the Doing Business ranking • Single window of issuing accounts and records • Tax records, SST reports and statistics should be submitted to a single body • Effect – cutting time for reporting Administration of taxes

  21. Financial decentralization

  22. PRINCIPAL DIRECTIONS OF REFORMS • Budget autonomy • Transfer of certain part of national taxes to the local budgets • Capable communities • Decentralization • KEY LINES OF CHANGES • New system of budget equalization Budget decentralization

  23. Independent planning and approving of local budgets United communities get authorities as regional centers United communities receive direct budget relations Certain part of national taxes is transferred to the local budgets Ability to maintain local budgets in banks Simplifying of procedures to obtain local guarantees to get loans from IMF

  24. Further steps of the Government in decentralization: • Supporting changes to Constitution of Ukraine directed to power decentralization • “On local self-governance in Ukraine” (new edition) • “On voluntary association of territorial communities” • “On the grounds of regional state policy” • “On decentralization in the construction area – delegation of responsibility to the local authorities” - “On municipal police”

  25. CREATION OF FINACIAL INVESTIGATION SERVICE

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