REUTERS
The International Monetary Fund (IMF) considers it necessary to toughen simplified taxation rules in Ukraine, simultaneously revising the criteria for businesses to qualify for the simplified tax system and excluding value added tax payers and legal entities from the simplified system.
Such recommendations are set forth in the IMF Technical Assistance Report published on the website of the organization.
"The simplified tax system (STS) should be simplified and most of its concessional nature eliminated by excluding all legal persons as well as all VAT taxpayers. There should be a single threshold that applies to both the VAT and the STS, which could be raised to 2 million hryvnias," the report reads.
According to IMF specialists, small single tax (ST) rates should be applied to private entrepreneurs with low income, who are currently in Group 1 of the STS.
The IMF notes that the STS, originally designed for small entrepreneurs, has become "very porous to others. The regime allows qualifying taxpayers to pay a very low tax on income and a symbolic social security contribution (SSC) fee, and offers ample opportunities for avoidance by employers who contract their workers as independent entrepreneurs." The elimination of this practice will be an incentive for individuals and companies to de-shadow their income, which, ultimately, will help balance revenues and expenses of the state budget, in terms of administering the SSC as the main payroll tax in Ukraine.
It is noted that Ukraine has reduced social security contribution rate from 40% to 22%.
"If nothing is done, the budget is poised to lose 4.5% of GDP in revenues in 2016 due to a legally mandated SSC rate reduction adopted in March 2015. The shift of the tax burden away from labor (as recommended by previous FAD missions) cannot jeopardize the integrity of public finances; it needs compensation from reliable sources of tax revenues," the report noted.
As UNIAN reported earlier, the simplified tax system for small and medium-sized businesses, envisaging the payment of a single tax, has been put in place in Ukraine since 2011. The criterion for qualifying for the STS is the amount of income generated by business activity. Until 2015, the income threshold was UAH 20 million, but in 2016 it was lowered to UAH 5 million.
Ukrainian entrepreneurs operating under the STS transferred UAH 10.9 billion in single tax payments to the budget in 2015.
Currently there are four groups of single tax payers in Ukraine. During the discussions of the future tax system and tax reform in Ukraine, the Finance Ministry proposed changes to the existing rules, while reducing groups of single tax payers to only three. Group 1 would include entrepreneurs who do not use hired labor and carry out only trade in the markets or provide personal services to the population, with the amount of income not exceeding UAH 300,000. Group 2, according to the ministry, would include businesses with an income of UAH 1.5 million to UAH 2 million. They would be forbidden to sell excisable goods, engage in gambling business. An obligation was introduced to use cash registers. Group 3 would include farmers.
The Finance Ministry's proposals were not supported by the Ukrainian parliament. At the same time, the government and the Verkhovna Rada agreed on the continuation of the tax reform and its implementation in the course of 2016. The Finance Ministry emphasized that main features of the reform must be discussed in the broad public by mid-2016.