Ukraine 2016 budget submitted to parliament

Ukraine’s Cabinet of Ministers submitted on Dec. 11 the 2016 draft budget to parliament based on its tax reform proposal, with a few compromises. It calls for the payroll tax to be cut to 20% from an average of 37% currently, the personal income tax rate to be hiked to 18% from 15% currently (as a compromise since the Finance Ministry suggested 20%). It calls for the enterprise profit tax rate to remain flat at 18% in 2016 (the Finance Ministry insisted on 20%) and to be cut to 17% in 2017. Value-added tax (VAT) rules are proposed to remain almost unchanged at 20% in general and 7% for medicine. It calls for a partial abolition of the special taxation regime for agri-producers, while the simplified taxation system will be denied to enterprises and restricted among individuals.

The 2016 central budget is projected at UAH 601.4 bln (26.6% of GDP) in revenue, which is 16.3% more than the 2015 target. Spending is projected to increase slightly less, by 15.9% yoy, to UAH 674.1 bln (29.8% of GDP), while the deficit is projected at 3.7% of GDP (UAH 83.7 bln), in line with IMF requirements.

The main source of spending growth is State Pension Fund subsidies boosted to UAH 172.3 bln (compared to UAH 80.8 bln in 2015) amid the payroll tax cut. Spending cuts targeted education and healthcare, while increases were earmarked for the army, police and housing. To compensate the planned reduced revenue from central bank profit (to UAH 38 bln from UAH 60.5 bln in 2015) and import duties (to UAH 19.3 bln from UAH 37.4 bln in 2015), the Finance Ministry suggested widening the VAT tax base (by partially abolishing the special taxation regime for agri-producers) and substantially increasing excise duties. Indeed, VAT and excise duties will secure nearly 77% of the collections increase. The enterprise profit tax (+35.8% yoy), rent on mineral extraction (+31.4% yoy) and personal income tax (+28.3%) will also contribute to state collections growth.

Quasi-fiscal spending in the 2016 budget was envisaged but no clear sums were proposed in the budget. Only UAH 16 bln of support for the State Deposit Guarantee Fund was clearly outlined while extra funding for Naftogaz and for commercial bank refunding was defined as potential spending items, without any details.

Alexander Paraschiy: The payroll tax reduction is the epicenter of the 2016 budget from which tremors are being felt throughout business. The planned subsequent fall in State Pension Fund revenue prompts the need for a substantial rewriting of traditional taxation rules, as well as spending revisions. Since the Cabinet openly plans for widening the tax base amid these changes, SMEs are highly critical of the plan. So are state employees, thousands of which face job cuts. Against this backdrop, we can hardly predict when and in what form the budget might be approved, if at all. What we know for sure is that the 3.7% of GDP deficit – provided for in this proposal – will have to be preserved to secure IMF funding.

Источник: Конкорд Капитал