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Major Tax Reform Proposed in Ukraine – Details and Next steps

Major Tax Reform Proposed in Ukraine – Details and Next steps

Ukraine’s government is currently considering a significant and wide-reaching tax reform. The draft proposal was presented to the American Chamber of Commerce today by Rostyslav Shurma, Deputy Head of the President’s Office, who is leading the initiative. We are now studying the proposal and will deliver our position on the reform shortly.

Why is tax reform being discussed now?

  • To stimulate investment by cutting taxes
  • To create new jobs by slashing the total current burden (51.5%) of salary taxes
  • To boost the economy and consumption by reducing taxes

What are the current challenges to collecting taxes?

  • Widespread tax evasion and avoidance
  • Low tax rates on categories that have a traditionally higher tax rate across the globe, e.g. metals & mining, rents, export duties, environmental pollution
  • Low percentage of exported processed goods – currently 73% of exports are raw materials and commodities, with the share growing every year

What is Ukraine’s government proposing?

  • 10% income tax
  • 10% value added tax
  • 10% personal income tax
  • 3% military tax (during martial law)

How will the proposed reform impact State Budget revenues?

In the mid to long term, the government expects positive results from the reform. The short term plan is to achieve a balance of payments within a year. The draft State Budget for 2023 is already developed based on the current tax rates - fluctuations in the revenue part will be within 5% of the 2022 level. A head-on reduction of such rates leads to budget losses of about 700 billion UAH (state budget, local budgets, pension fund). The introduction of the reform is planned only after conducting the necessary consultations and reaching a fundamental consensus with international partners and business community. A transition periods will be taken into account.

How will the tax cuts be compensated?

  • 350 billion UAH is compensation for transformation of the single social contribution and personal income tax paid by the state from the public servants’ salaries
  • Cancellation of VAT refunds for exporters of raw materials in order to stimulate further redistribution; there will be a detailed classifier
  • Introduction of a small export duty as an alternative to VAT
  • Introduction of a general system of taxation and a single rate, for example, introduction of the VAT on primary real estate 10% - 20 billion UAH
  • Liquidation of 4 preferential groups for large farmers. Land bank will be limited to about 500 hectares (about 80% of farms in Ukraine). Preventing large agrarian holdings from using the simplified system, which was designed to support farming – 10 billion UAH
  • Cancellation of the 50% benefit on dividends – they will be transferred to the general taxation system – it will be about 6-7 billion UAH
  • Increase in rates and changes in the administration system of the environmental tax – 12-15 billion UAH
  • Introduction of certain special conditions for particular industries – e.g., from gambling industry about 15 billion UAH as discussed with operators
  • Additional rents for mineral extraction – 43-45 million UAH
  • White salaries and decrease of shadow economy

What happens next?

  1. We will share with you (as soon as we receive them) the detailed materials of the concept of the proposed tax reform so that you can provide feedback and expert commentaries
  2. We will involve AmCham experts in the detailed work on the tax reform concept
  3. We will conduct regular meetings with AmCham members and keep you in the loop of latest developments

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