Tetiana Ostrikova: The IMF does not mind the tax on the withdrawn capital and urges to reform the State Fiscal Service

The delegation of people’s deputies of the Samopomich Union is currently on a working visit to the United States. The Vice Speaker of the Parliament Oksana Syroyid, the Chairman of the faction Oleh Bereziuk and MP Tetiana Ostrikova met with the head of the IMF mission in Ukraine Ron Van Roden and Deputy Director of Ukraine in the IMF Vladyslav Rashkovan in order to discuss the cancellation of the tax on income and the transition to the tax on withdrawn capital.

Following the meeting Tetiana Ostrikova reported that for the Ukrainian business which is expecting the tax on withdrawn capital there were two pieces of news.

“The first one is that the IMF does not mind this tax and considers such a model of income taxation possible as long as certain factors are taken into account. The second piece of news is that the IMF does not directly support the draft law on the taxation of withdrawn capital, and the Ukrainian government is making use of this having a pretext for its inaction in the tax sphere.”

Despite the fact that the President of Ukraine promised to business to submit a draft law on the tax on withdrawn capital, prepared by experts, people’s deputies and the working group under the Ministry of Finance, to the parliament back in December, this issue has been postponed indefinitely with reference to correspondence with the IMF. The issue of the tax on withdrawn capital was not specified in the Memorandum between the IMF and Ukraine, therefore it is not a top priority for the Fund. The IMF is concerned about the lack of tangible reforms in the tax sphere, apart from the elimination of the corruption with VAT refunds. Therefore, the IMF reasonably believes that it is necessary to introduce new rules of profit taxation along with other measures: the reform of the State Fiscal Service, the reform of the customs, the reduction of budget expenditures, in particular, on the maintenance of state bodies, introduction of the rule of law, fair trial and protection of property rights. This will result in simplification of the tax administration and will make the controlling bodies act within the law, be responsible for unlawful decisions, as well as will attract additional funds from the “shadow” to the budget. The IMF estimates possible budget losses connected with the cancellation of the income tax in 2019 at the level of 1-1.5% of GDP, that is, 30-45 billion hryvnias. Tetiana Ostrikova, referring to the calculations of Ukrainian experts, says that this reform does not pose a critical threat to the fiscal stability of the budget, because the reduction of expenditures by 30 billion is not a problem for the budget with 1 trillion hryvnias of income. This is confirmed by the example of income from privatization: in the budget of 2017 it was expected that we will receive 17 billion hryvnias from the privatization of state property. In the end, we did not receive this amount. Yet, this did not affect the budget fulfillment in 2017. The authorities simply had to tighten their belts a bit.

It has been established that the IMF considers it possible to introduce this model of income taxation as long as the following issues are taken into account: the availability of compensators to cover possible budget losses and the inclusion in the draft law of operational issues from the experience of Estonia and Georgia, where such models already operate.

“So, we can continue working on the draft law and even prepare the budget for 2019 on the basis of the tax on withdrawn capital having compensators for possible losses, of course. But this is only possible if there is a political will and not just a desire to flirt with the business before the elections,” summed up Tetiana Ostrikova.

Today, Ukrainian entrepreneurs have a chance to make the authorities adopt the necessary decision. To do this, we need to stimulate the government to “tighten their belts” and cut expenses on the state apparatus, as well as to struggle with the “shadow” in order to increase revenues to the budget.

Tetyana Ostrikova
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