Ukraine president initiates tax reform compromise

Ukraine’s National Reforms Council, led by President Petro Poroshenko, approved a compromise tax reform proposal, the president’s website reported on Dec. 8. According to the compromise, the enterprise profit tax rate would be 18% in 2016 and 17% in 2017 (the Finance Ministry proposes increasing it to 20% in 2016 from 18%). The payroll tax would be cut to 20% (in line with the MinFin draft and down from today’s average rate of 37%) and the personal income tax would be 18% (compared to 20%, as drafted by MinFin). Since 2018, the payroll and personal income taxes will be merged in a single tax with a combined rate of 20%. The VAT on medicine would stay at 7% (MinFin suggested increasing it to 20% sin 2016). A special taxation regime for farmers will be partially preserved (with no details, so far). The council also approved some administrative changes offered in an alternative to MinFin’s draft reform, including the requirement that the State Fiscal Service introduce individual online tax payments and improve automatic VAT reimbursement for exporters.

Alexander Paraschiy: The National Reforms Council’s proposal will speed up parliament’s approval of not only the tax reform, but also the 2016 state budget, we believe. No doubt both sides won’t be satisfied with this compromise. Civic activists have already said that it’s a partial solution while the Finance Ministry will have to find extra funding (or cut spending) to meet the IMF’s 3.7% of GDP budget deficit requirement for 2016. Most likely, the government and president will have to overcome populist-driven resistance to spending cuts. It’s likely the president will yet again have to directly intervene to force the legislation through parliament, with his notorious closed-door meetings of yelling and threats against MPs.

The Cabinet’s final drafts of the compromise the tax reform and 2016 budget are not yet available, therefore it’s too early to draw any conclusions regarding their effect on business.

Источник: Конкорд Капитал