Oligarchs do not need wealthy Ukrainians or Why is the government trying to find excuses to avoid introducing the tax on withdrawn capital?

“The state should love and protect its taxpayers, because these people pay their money to the state!” said Arthur Laffer, an outstanding American economist. It seems that this expression has nothing to do with those who are running Ukraine today.

Brief background

The introduction of the tax on withdrawn capital instead of the income tax is a promise with which the Ukrainian business has been palmed off for almost three years. The deputies envisaged the introduction of this new tax in the draft law on tax liberalization registered in the parliament in October 2015. Later, part of its regulations became laws, and with regard to the tax on withdrawn capital, the Rada instructed the government to develop its text and submit it to the parliament before July 1, 2017. Then there were meetings of the working group in the Ministry of Finance, and… that’s it. MP Tetiana Ostrikova from the Samopomich faction was among those who drafted the bill. Samopomich has consistently supported the idea of introducing the tax on withdrawn capital as a tool for reviving the economy, liberalization, and attraction of new investments.

In December of the same year, at a meeting with business representatives, the President promised that there would definitely be a reform of the income tax. But a few months later, on March 12, 2018, Petro Poroshenko changed his mind and stated that it was too early to introduce the tax on withdrawn capital.

The President allegedly referred to the position of the West on this matter, saying that the International Monetary Fund was totally against the adoption of the law.

The delegation of Samopomich at the meeting with the IMF in Washington established that the IMF’s position was actually very clear and precise: Ukraine’s creditors are not against the abolition of the income tax and the introduction of the tax on withdrawn capital, but, first of all, they are calling for the reform of the State Fiscal Service, which is lagging. The only recommendation from the IMF is not to increase the deficit of the state budget, which means that we must provide compensators or reduce the financing for bloated and sometimes corrupt budget expenditures.

But it is already the end of May 2018, and neither the government nor the President has introduced the bill.

Looks like the Presidential Administration has become entangled in lies

Yet, the President continues telling how good and useful the tax on withdrawn capital is. And from time to time, for unknown reasons, he shifts the responsibility to the parliament: a few days ago, during his visit to Mykolaiv, responding to a question about the introduction of the bill Petro Poroshenko decided to “appeal to people’s deputies not to delay its consideration.”

In addition, Deputy Head of the Presidential Administration Dmytro Shymkiv states that the IMF are no longer against the bill. However, the latter is still not submitted to the parliament.

It seems that the authorities are using the tax on withdrawn capital – and the position of the IMF as well – as a tool of flirting with the business on the eve of elections.

All these games testify to one thing – despite all the eloquent promises, no one is going to do anything. Meanwhile, the law enforcement agencies continue to “nightmarize” the business; there is no promised tax liberalization; there is no tax on withdrawn capital. Consequently, there is no investment and economic growth. This all testifies to the fact that the authorities do not need wealthy Ukrainians.

Instead of Reference

Nowadays, we have an income tax in Ukraine. It is a nationwide direct tax, which is levied on profits received by enterprises. The profit for the payment of this tax is determined by the rules of accounting except for certain tax differences.

The essence of the tax on withdrawn capital lies in the fact that transactions between two taxpayers of this tax are not subject to taxation until the earned funds are withdrawn from the enterprise in the form of dividends and the transactions equal to the distribution of profits. That is, the tax is not imposed if the enterprise invests the earned money into the development and creation of new jobs, and is paid only when the profit is withdrawn in the form of dividends and several transactions in favour of non-residents, which are now used as the most common tax minimization schemes.

Samopomich Union supports the transition from the oligarchic model of the economy to the welfare economy of every Ukrainian through the introduction of equal opportunities for free entrepreneurship activities; the implementation of liberal tax reform (in particular, the abolition of income tax and the transition to the tax on withdrawn capital); doing away with the pressure on business and bringing to liability the officials responsible for the loses of business; the transformation of customs from the source of smuggling and enrichment of oligarchic groups to the institution that would assist the international trade and ensure security.

This position has been repeatedly publicly expressed by MPs Tetiana Ostrikova, Oleh Bereziuk, Andriy Zhurzhiy and other members of the parliamentary faction. In particular, it was declared in the resolution of the party congress in March 2018. In addition to this, it was discussed at a recent meeting of people’s deputies with the Ukrainian Business Council.

Tetyana Ostrikova
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