TAX REFORM: CONCEPT THAT UNITES SOCIETY Budgetary and tax aspects

Introduction Concept designed by the coalition of authors – presenters of tax reform concepts at the Open Communication platform of National Reform Council 2

AIM Creation of favorable tax conditions for competitiveness and sustainable growth of Ukraine’s economy 3

Key issues of tax legislation – High tax burden – rampant discretion – intricacy, vagueness, lack of logic – Frequent changes in tax legislation 4

Problems to be solved with this Concept 5 1. Minimise corruption2. Decrease tax pressure 3. Restore trust between business and the State 4. Facilitate entrepreneurship development in the society 5. Increase budget revenues through economic growth

Task #1: Stipulate in Constitution: Redistribution through public finance should not exceed 35% of GDP 6

Task #2 Task #2 Minimise corruption 1.Introduction of Tax payers e-office as of January 1, Abolition of penalty plans for tax violations. 3.Accountability of public servants for illegal claims and damage compensation. 4.Improving norms of responsibility for tax fraud. 5.Tax police liquidation and separation of competences of collecting taxes and tax fraud investigation. 7

Task #3: Task #3: Decrease tax pressure 1.Budget spending reduction according to economic situation. 2.Salary tax cut down (personal income tax and mandatory social contribution) from 55-65% to 20%*. 3.Social insurance reform, Social insurance fund liquidation, State social guarantee introduction. 4.Transition to taxation of distributed profit with 15% rate. 5.Introduction of single account for all state taxes (except VAT). 8 * It is impossible to attract investors by a high level of social security. Experience of Georgia and many other countries proves that decrease of rates is covered by de-shadowing. Compensators are presented on the slide “A new budget model.”

Task #4: Restore trust between business and the State 1.Suspension of strict fiscal policy and implementation of a liberal tax reform. 2.Imposition of a moratorium on any changes in the tax law which negatively impact the business climate. 9 * Implementation of fiscal procedures in 2014 – 2015 led to mass migration of business out of Ukraine, shut-down of businesses, and economic downturn. It is impossible to attract investors by fiscal policy. Business is looking forward to a liberal tax reform aimed at the development of entrepreneurship and economic growth.

Task #5: Facilitate entrepreneurship development in the society 1.To keep simplified system of taxation and reporting. 2.After reform of general tax system, changes to simplified system of taxation might be discussed. 3.Improvement of digital tax administration. Effective department of finance investigation. 10

Task #6: Increase budget revenues through economic growth 1.Stimulation of investments through taxation of distributed profit. 2.Reducing pressure on the salaries and, as a result, its legalization and increase of actual demand. 3.Reducing administrative and corruptive pressure on business through liquidating discretion in the process of tax administration. 11

Tax administration Ban on instituting criminal proceedings before tax liabilities are agreed upon and the agreed tax dues are paid to the budget. Cutting down on the number of primary documents and the time spent for tax reporting. Liberalization of the system of punitive sanctions in the process of additional tax assessment and for the violation of cash discipline. Ensuring openness of the State Fiscal Service of Ukraine through publishing the executive summary on the activity of the service and the taxpayers. 12

Concept IndicatorThe plan VAT 20% (automatic compensation, digital office, separated account in Treasure) Income tax Replaced with tax on distributed income 15-20%, tax on dividends 0% Income tax for individuals Single social contribution Income tax for individuals: 20% Single social contribution: 0% (not paid) Budget Cancel «support» to business, fight misappropriation, revision of pension fund, electronic public procurement Social insurance fund Abolishing of temporary disability funds, and accident at work. 12 days of sick leave for company’s cost, medical insurance Electronic administration of VAT Electronic administration Capital assets of enterprises (property, real estate) Property tax without privilege Resources, excise dutyIncrease already happened 13

14 Budget income Performed research on 2013 data, as well as data, show that the suggested Concept increases income to the budget by 7 billion UAH ( 2013 prices) in a pessimistic scenario

New budget model IndicatorExpected changeIncome Income tax Replaced with tax on distributed income 15% - 40 bln UAH Personal income tax Single social contribution PIT: 20% Single social contribution: 0% (not paid) bln UAH Additional PIT due to increase in salaries Except state owned enterprises + 20 bln UAH Budget savings Cancel «support» to business, fight misappropriation, revision of pension fund, electronic public procurement + 30 bln UAH Social insurance funds Abolishing of temporary disability funds, and accident at work. 12 days of sick leave for company’s cost, medical insurance + 15 bln UAH VAT E-governance, automatic compensation, digital office, separated account in Treasure + 30 bln UAH Real estate, property Property tax + 2 bln UAH Capital assets of enterprises Property tax without privilege (1-2% of the cost) + 30 bln UAH Resources, excise duty Increase already happened + 20 bln UAH Budget profit + 7 bln UAH. 15

Authors coalition Authors of the concept “A Common- Sense Tax System” Reanimation Package of Reforms civil initiative Nova Kraina (New Country) civil platform Ukrainian association of certified accountants and auditors Entrepreneurs for Reforms group Authors from the National University of State Tax Service of Ukraine Authors from the Nezalezhnyi Audytor (Independent Auditor) journal Author’s concept (Danylo Monin) (to be continued) 16

Thank you for attention! 17