On August 16, the Office of the President of Ukraine announced a new tax reform, which has already been dubbed "10-10-10". It provides for a sharp reduction in taxes: 10% - income tax (currently 18%), 10% - personal income tax and 10% - VAT (currently also 20%). Also, within the framework of this reform, it is planned to cancel the EUV and increase the military levy from 1,5% to 3%.
The leader of the "Servant of the People" party Olena Shulyak said that the Verkhovna Rada will consider this tax reform as soon as it is supported by the Cabinet of Ministers.
In turn, Deputy Head of the Office of the President Rostislav Shurma said that today the discussion of the new concept of tax reform is ongoing and there is no satisfactory solution yet.
In order to understand the nuances of possible tax innovations and to understand the situation for business, entrepreneurs and the country's budget, "ElitExpert" turned to the ex-Deputy Minister of Economy, Professor Mykhailo Pozhivanov, who currently heads the "Batkivshchyna" VO branch in Odesa, for a comment.
WHAT IS THE GOVERNMENT PLANNING
Today it is known that the new tax reform is already under development, so it is possible that we will soon see its draft. From the information known to date, the "10-10-10" reform provides for the reduction of several key tax rates to 10%: corporate income tax and personal income tax, which are currently 18%, as well as VAT, where the tax rate is currently - 20%. In addition, it is proposed to cancel the uniform social contribution of 22% and increase the military levy from 1,5% to 3%.
What will happen to Ukraine's economy if such a tax scheme is approved? First of all, the reduction of state budget revenues by approximately 30-40%. Total losses can be estimated at hundreds of billions of hryvnias. And this is logical, because it is about a radical reduction of the tax burden.
At the same time, it is planned to increase the environmental tax and VAT rates for pharmaceutical products, as well as for fuel from 7% to 10% - in this way, the authorities plan to close the budget deficit and balance the balance.
ANALYSIS OF THE REFORM AND THE QUESTION
First Why exactly "10-10-10" and not "12-13-14" or "15-10-15"? I did not find a logical justification for such numbers and began to suspect that such a triad arose only for the sake of beauty. Round numbers are good, but if the motivation is only in them, then save us, God, from such a reform.
Second. Will lowering taxes contribute to the detinization of the economy and the improvement of the conditions in which business operates? Answering this question is not as simple as it seems. Large and medium-sized businesses will probably not be against such a model. But FOPs on the single tax, who now pay their 5%, are unlikely to be delighted. The initiators of the reform say that they surveyed entrepreneurs, and 80% of them are ready to pay taxes honestly if a similar model is applied.
But we don't know if this 80% was previously in the shadows. Perhaps they have been paying taxes honestly and plan to continue to do so. According to the logic of the initiators, if the economy comes out of the shadows, then at a lower tax rate, more companies will pay, and thanks to this, the budget will be filled. But this requires detailed calculations, which are not yet publicly available.
Third I have repeatedly pointed out that the reduction of fiscal pressure will contribute to the investment attractiveness of the country. But this is not the only factor, although it is quite important. Since transparent rules of the game, deregulation, trust in law enforcement and judicial bodies also play a role. That is, the reduction of taxes alone will not attract investments. And now, during the war, even more so.
The optimal level of taxation in wartime should be such as to finance defense and other critical expenditures. War can only be financed through taxes, foreign aid and emissions. External aid to Ukraine is coming, but we do not know how long the hostilities will last.
As for emission, this is of course the worst case scenario that can lead to hyperinflation, but emission also happens. On September 12, it became known that the National Bank issued an additional 15 billion hryvnias by buying government bonds, in other words, the printing press has already been started, which is not good news.
Fourth What will happen to the pension system in the event of the abolition of the Social Insurance Institution, which is the main source of replenishment of the Pension Fund. Today, the income from the Social Insurance Institution is not enough to provide pensioners with payments.
In addition, a thorough pension reform never took place in our country, we did not switch to an accumulation system, did not create a developed network of non-state pension funds that would be trusted by depositors.
Expanding the deficit of the Pension Fund and abolishing the Social Insurance Institution may lead to the removal of responsibility from the state for social support of future pensioners and people who have lost their ability to work or become unemployed. The complete rejection of social guarantees is the scenario that first comes to mind when considering the "10-10-10" reform.
Fifth. Do the authors of the "ten" realize that their initiative will not please our EU partners. Why? Because the tax changes to some extent contradict Ukraine's European integration aspirations. In particular, there is a requirement that the basic VAT rate does not fall below 15% and does not distort competition.
However, innovation lobbyists believe that EU restrictions are not an obstacle for them. They plan to reduce the VAT rate to 10% for the first three years in order to overcome corruption. In the future, the rate can be increased to 15% in order to meet EU requirements. However, lowering rates is unlikely to help the government in negotiations with international partners for wartime financial support. It will be difficult for donors to explain why a country that needs money is radically reducing its sources of income.
Needless to say, what a cyclopean amount of funds Ukraine will need to rebuild after the war. And also in order to return all the borrowings and external debts. The government is hoping for reparations from Russia, but this is a separate and complex process, and in the worst case, it may not be possible to receive payments from Moscow.
CONCLUSIONS
Does all of the above mean that tax reform is not worth it? Of course, it doesn't mean. But it should not be spontaneous, but deeply thought out.
