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18 August 2017
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Nation’s rich might see progressive taxation

Prime Minister Azarov has announced...

Prime Minister Azarov has announced plans to fill the gaps in the national budget at the expense of the most deep-pocketed citizens, as they will now have to give 40% of their incomes to the state, according to Kyiv Weekly. Accordingly, this new scheme means returning to the progressive taxation scale which was used in Ukraine before 2004. The ministries of economy and finance are tasked with drafting a corresponding bill upon Azarov’s instructions. “The gap between incomes in Ukraine impedes social and economic development and it is not fair. It is expected that changed rate of income tax and luxury tax, which is also in the works, will be able to change the situation,” said the PM’s office. Managers in financially transparent companies may fall victims of these plans. According to a recent study conducted by Ernst&Young, monthly salaries exceeding UAH 100,000 are not rare in Ukrainian companies amongst the managerial class, and despite the global economic recession they slowly continue to grow. For example, directors of companies can be paid UAH 200,000 monthly, which is about the cost of a new car. The highest salaries go to top managers in iron and steel works and power industry. “Owners of major holdings are interested in skilled top managers who understand production processes. There are few such experts in Ukraine, which increases demand and pushes up salaries,” explained managing partner in Comilfo Executive Search Head Hunting Company Ilya Fomin. Top managers are traditionally well-paid in the banking sector. In all cases, according to chief commercial officer in FinPersonal Agency Oleksandr Sukhnatskiy, the nationality and citizenship of top managers means a lot. “For example, when a foreigner holds a certain position, his or her salary could be higher by 1.5 – 2 times,” said Sukhnatskiy. Then there is the issue of tax evasion, for which progressive taxation scale has other drawbacks, such as the substantial administrative and court expenses required for levying income tax in compliance with the old-new system. And finally, progressive income tax, even though it is used in many developed countries, “deforms the good functioning of the market economy with the subsequent increased unemployment, lowering of incentives and reduction of investments,” said head of intergovernmental fiscal relations laboratory at the Russian Gaidar Institute for Economic Policy Vladimir Nazarov.

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