Travelers might soon be obliged to pay to leave Russia as officials are considering a new exit tax for international passengers.
The levy is needed to boost domestic flight demand which would be freed of the value added tax, according to the proposal submitted by the Transport Ministry.
Ticket prices for international routes might rise by up to 1,000 rubles, but experts are dubious as to whether flying within the country’s borders will become cheaper.
Zero VAT on domestic flights could leave the budget without annual 32 billion rubles, but transport officials want travelers to plug that hole.
Exit taxes for international flights have been proposed “from national airports for all commercial flights regardless of the carriers’ national identity.
The document has been submitted to the Finance Ministry, which has yet to announce its decision.
Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts
Sunday, 15 April 2012
Sunday, 3 July 2011
Medvedev outlines budget plans
Russia’s budget for the coming three years has been officially outlined as President Medvedev delivered his annual budget address to the government.
Privatization of state assets and decentralization of the “power vertical” should be among the main priorities for the coming period, according to the president.
But it will be up to the government to decide who is going to pay for the “fundamentally new model of economical growth”.
“In the presidential address it was said that we need to use the funds gained from privatization, and money from oil and gas income, and other sources as well [to meet the shortfall in income,” Alexei Kudrin, the Finance Minister, told journalists.
“For example, the economists in the government see that it will be necessary to introduce a descending tax scale for insurance payments for salaries, for example over 512,000 rubles ($18,125) per year,” he said.
This could help collect the missing 160 billion rubles ($5.7 billion), Kudrin added. The rest should come from the more intensive use of oil and gas revenues, according to the minister.
Currently employers have to make insurance payments at a common rate for any salary below 463,000 rubles ($16,575) per year. Above that level no compulsory payments are required.
A proposal currently under discussion would push that limit to 512,000 rubles, with a starting rate of 10 per cent
The general line of the presidential annual budget address is to modernize economy and reduce the role of the sate.
“It [the economic model] is to be based on the growth of private initiative, innovations … on efficient system of public services, on high-quality financial and production infrastructure,” Medvedev said in his speech, published on the Kremlin’s official web-site.
And easing the tax burden for small and medium-sized businesses and social service providers, as well as various NGO is on the presidential to-do list.
At the same time pensions and other social payments are to grow by over 11 and 6 per cent respectively, he said.
But that has prompted a shortfall of 400 billion rubles ($14.3 billion) in the budget, which will has been pushed off the president’s desk.
Privatisation, the oil and gas industry, currency reserves and ‘other sources’ are to help meet the cost of the initiative, the president said.
“The government is to define the ratio to use these sources in the budgeting process. This is your assignment,” Medvedev said.
Saturday, 28 August 2010
Hopes Fade That New Ukrainian Tax Code Will Be Progressive
KIEV, Ukraine -- Experts say the document is unlikely to fulfill the key promise of relieving the tax burden on Ukrainian businesses, keeping many of them in the shadows.
With the government preparing to discuss the final version of the controversial draft tax code at a special meeting on Sept. 1, experts say the document is unlikely to fulfill the key promise of relieving the tax burden on Ukrainian businesses, keeping many of them in the shadows.
According to the latest publicly available version of the draft code, the taxation system will largely be preserved in its current form. Most disappointing for business is the likely retention of cripplingly high payroll taxes, which many businesses blame for forcing them to pay employees under the table in order to survive.
Recently published research by the World Bank placed Ukraine as the world’s sixth biggest shadow economy with an average of 54.9 percent of the economy from 1999 to 2007.
Currently, employees are to pay a reasonable 15 percent income tax. But many employers discourage employees from declaring their entire salaries, or protect themselves by paying lower salaries, to avoid paying the high payroll tax. This tax is paid by employers as a percentage of the salary they give to employees, and typically exceeds 30 percent.
According to Valentyna Izovit, the head of Light Industry Association of Ukraine, for every Hr 1 industry earns it pays Hr 0.65-0.80 of tax, forcing many into the shadows. Many prefer to pay employees tiny official salaries or none at all, and hand over the majority of the salary in an envelope.
Kyiv resident Oksana, who did not want to give her last name out of fear of losing her job, works off the books at a land surveying firm. Officially she is paid Hr 900 per month, but the firm is paying her an additional Hr 2,000 in “grey salary” as it’s known.
“I started unofficially and was getting paid completely off the books, so it is better now. But every month I am afraid of not getting that unofficial part and wondering how I would cope,” Oksana said.
Those who work completely off the books can be let go at any time with no unemployment benefits. Furthermore, they don’t get record of length of service – one of crucial criteria for a pension – and have no insurance in case of accidents at work.
Many employers ask their employees to register as private entrepreneurs so that they pay a single flat tax – currently from Hr 20 to Hr 200 per month. The government is now trying to limit those who fall under the single tax, such as Internet providers, accountants, engineers and others. For many professions, the single tax looks set to rise to Hr 600 under the new tax code.
“This will surely force even more people into the shadows,” says Oleksandr Zholud, an economist at the International Centre for Policy Studies, a Kyiv-based think tank.
However, many do not mind working unofficially.
“Many employees do not have confidence in the Ukrainian pension and social security systems and prefer to receive more undeclared cash to finance their personal needs and take care of their retirement needs themselves,” said Oleh Chaika, director of tax and legal services at leading consulting firm KPMG Ukraine.
Kostyantyn Solyar, an associate at Asters law firm, said most Ukrainians do not understand why they should pay taxes and are very reluctant to do so. “This is understandable, as many Ukrainian bureaucrats are inclined to steal money from the state budget rather than invest them for the prosperity of society,” he said.
According to a survey conducted in 2009 by the Kyiv-based Razumkov Center think tank, 38 per cent of Ukrainians are certain their taxes are being stolen by officials and only 4 per cent actually see their taxes returned to them and their families through public services provided by the state.
“The biggest challenge is changing the overall mindset towards paying taxes in Ukraine,” said Jorge Zukoski, President of the American Chamber of Commerce in Ukraine.
“Both business and the population need to be convinced that if they invest into the state, the state will take care of them, their families and their neighbors in the future.”
Some countries have succeeded in bringing employers and employees out of the shadows by lowering the tax burden on them.
In Georgia, payroll taxes were eliminated and instead personal income tax was raised from 12 percent to 20 percent. This increased tax flow and contributed to Georgia moving up to 11th place in the World Bank’s Doing Business rating for 2010. Ukraine, meanwhile, is languishing in 142nd place.
Such a plan is not on the table for Ukraine. “It is a debatable issue, but forcing the economy out of the shadows has nothing to do with lower taxes ... [Lowering taxes] has an effect in short term only, say, in two years,” said Iryna Akimova, deputy head of the presidential administration.
Back in 2008 a single, flat payroll tax of 20 percent was considered by lawmakers. However, the idea came to a dead end.
“There is an ongoing discussion about a single social tax. ... But we simply cannot afford to lower taxes in the near future,” Akimova said.
Finance Minister Fedir Yefymenko said a decrease in payroll tax is only possible after pension reform.
However, some say these are weak excuses.
“We shouldn’t wait until private pension funds are introduced,” says Zholud.
“For starters, we could put everyone in equal position when it comes to pension. For example, governmental officials do not pay into the pension fund at all, while many of them receive a pension of thousands of hryvnias.”
Meanwhile, officials and experts admit that there are other ways to fill the budget while easing the pressure on business and average Ukrainians and restoring people’s trust in tax system.
According to Akimova, the state would save around $20 billion (Hr 160 billion) by eliminating corruption.
A property tax and luxury tax – neither of which is included in the code, despite demands from the presidential administration – would mainly hit those who can afford to pay, and could bring in Hr 5 billion and Hr 85 million respectively, according to government estimates.
A deal with Cyprus, which created an offshore tax haven for Ukrainian business, costs the country around 1-2 percent of gross domestic product every year, experts say.
But until these are introduced, the state will continue to squeeze small businesses.
“Most businesses and people want to work officially,” said Dmytro Oliynyk, head of the Employers Federation of Ukraine. “They just need to be encouraged and given clear simple rules.”
With the government preparing to discuss the final version of the controversial draft tax code at a special meeting on Sept. 1, experts say the document is unlikely to fulfill the key promise of relieving the tax burden on Ukrainian businesses, keeping many of them in the shadows.
According to the latest publicly available version of the draft code, the taxation system will largely be preserved in its current form. Most disappointing for business is the likely retention of cripplingly high payroll taxes, which many businesses blame for forcing them to pay employees under the table in order to survive.
Recently published research by the World Bank placed Ukraine as the world’s sixth biggest shadow economy with an average of 54.9 percent of the economy from 1999 to 2007.
Currently, employees are to pay a reasonable 15 percent income tax. But many employers discourage employees from declaring their entire salaries, or protect themselves by paying lower salaries, to avoid paying the high payroll tax. This tax is paid by employers as a percentage of the salary they give to employees, and typically exceeds 30 percent.
According to Valentyna Izovit, the head of Light Industry Association of Ukraine, for every Hr 1 industry earns it pays Hr 0.65-0.80 of tax, forcing many into the shadows. Many prefer to pay employees tiny official salaries or none at all, and hand over the majority of the salary in an envelope.
Kyiv resident Oksana, who did not want to give her last name out of fear of losing her job, works off the books at a land surveying firm. Officially she is paid Hr 900 per month, but the firm is paying her an additional Hr 2,000 in “grey salary” as it’s known.
“I started unofficially and was getting paid completely off the books, so it is better now. But every month I am afraid of not getting that unofficial part and wondering how I would cope,” Oksana said.
Those who work completely off the books can be let go at any time with no unemployment benefits. Furthermore, they don’t get record of length of service – one of crucial criteria for a pension – and have no insurance in case of accidents at work.
Many employers ask their employees to register as private entrepreneurs so that they pay a single flat tax – currently from Hr 20 to Hr 200 per month. The government is now trying to limit those who fall under the single tax, such as Internet providers, accountants, engineers and others. For many professions, the single tax looks set to rise to Hr 600 under the new tax code.
“This will surely force even more people into the shadows,” says Oleksandr Zholud, an economist at the International Centre for Policy Studies, a Kyiv-based think tank.
However, many do not mind working unofficially.
“Many employees do not have confidence in the Ukrainian pension and social security systems and prefer to receive more undeclared cash to finance their personal needs and take care of their retirement needs themselves,” said Oleh Chaika, director of tax and legal services at leading consulting firm KPMG Ukraine.
Kostyantyn Solyar, an associate at Asters law firm, said most Ukrainians do not understand why they should pay taxes and are very reluctant to do so. “This is understandable, as many Ukrainian bureaucrats are inclined to steal money from the state budget rather than invest them for the prosperity of society,” he said.
According to a survey conducted in 2009 by the Kyiv-based Razumkov Center think tank, 38 per cent of Ukrainians are certain their taxes are being stolen by officials and only 4 per cent actually see their taxes returned to them and their families through public services provided by the state.
“The biggest challenge is changing the overall mindset towards paying taxes in Ukraine,” said Jorge Zukoski, President of the American Chamber of Commerce in Ukraine.
“Both business and the population need to be convinced that if they invest into the state, the state will take care of them, their families and their neighbors in the future.”
Some countries have succeeded in bringing employers and employees out of the shadows by lowering the tax burden on them.
In Georgia, payroll taxes were eliminated and instead personal income tax was raised from 12 percent to 20 percent. This increased tax flow and contributed to Georgia moving up to 11th place in the World Bank’s Doing Business rating for 2010. Ukraine, meanwhile, is languishing in 142nd place.
Such a plan is not on the table for Ukraine. “It is a debatable issue, but forcing the economy out of the shadows has nothing to do with lower taxes ... [Lowering taxes] has an effect in short term only, say, in two years,” said Iryna Akimova, deputy head of the presidential administration.
Back in 2008 a single, flat payroll tax of 20 percent was considered by lawmakers. However, the idea came to a dead end.
“There is an ongoing discussion about a single social tax. ... But we simply cannot afford to lower taxes in the near future,” Akimova said.
Finance Minister Fedir Yefymenko said a decrease in payroll tax is only possible after pension reform.
However, some say these are weak excuses.
“We shouldn’t wait until private pension funds are introduced,” says Zholud.
“For starters, we could put everyone in equal position when it comes to pension. For example, governmental officials do not pay into the pension fund at all, while many of them receive a pension of thousands of hryvnias.”
Meanwhile, officials and experts admit that there are other ways to fill the budget while easing the pressure on business and average Ukrainians and restoring people’s trust in tax system.
According to Akimova, the state would save around $20 billion (Hr 160 billion) by eliminating corruption.
A property tax and luxury tax – neither of which is included in the code, despite demands from the presidential administration – would mainly hit those who can afford to pay, and could bring in Hr 5 billion and Hr 85 million respectively, according to government estimates.
A deal with Cyprus, which created an offshore tax haven for Ukrainian business, costs the country around 1-2 percent of gross domestic product every year, experts say.
But until these are introduced, the state will continue to squeeze small businesses.
“Most businesses and people want to work officially,” said Dmytro Oliynyk, head of the Employers Federation of Ukraine. “They just need to be encouraged and given clear simple rules.”
Thursday, 12 August 2010
Business Sense: By Taxing Foreigners At Higher Rate, Tax Code Will Hurt Investment
KIEV, Ukraine -- Jorge Zukoski says that a 30 percent income tax on foreigners is unjustified, compared to 15 percent for Ukrainians. The latest version of the draft tax code was published this week for public discussion.
Since the chorus of disapproval that met its first publication in June, some positive changes have been made. But a large number of discriminatory and unfavorable provisions remain, and more work is needed to create a fair and thoughtful final document that will likely be voted on in parliament in September.
The American Chamber of Commerce in Ukraine applauds the foresight of parliament in ensuring that this far-reaching piece of legislation is open for input from relevant stakeholders.
The chamber and the business community we represent has spent a lot of time preparing professional and detailed recommendations and targeted amendments that are geared to protecting the interest of the state as well as the private sector and the citizens of Ukraine.
Unfortunately, and despite assurances from the relevant parliamentary committee as well as the Cabinet of Ministers, a majority of these suggestions have not yet been incorporated into the latest version of the document.
Keep in mind that the original version of the draft tax code submitted to parliament on June 15 created such an outcry that the process of adoption was put on hold to solicit and accept input for the new comprehensive Tax Code.
Therefore, committees and working groups comprised of tax experts united under the chamber umbrella continue working on improving the quality and consistency of this piece of draft legislation within the framework of a working group on the draft tax code headed by Deputy Prime Minister Sergiy Tigipko, as well as with other relevant decision makers.
One of the primary focuses of the business community has been and will continue to be focused on ensuring equitable and equal treatment of all taxpayers. The latest version of the draft tax code no longer creates additional problems for taxpayers within the process of administration of taxes, but some outstanding issues remain rather restrictive.
An example of a positive improvement is a provision that foresees that a documentary check is conducted by tax authorities only by agreement with the taxpayer. This important change will significantly simplify doing business considering the historical number of tax audits experienced by the business community in the past.
Another positive sign is that the latest version of the draft tax code contains regulations that foresee a resolution in favor of the taxpayer, not regulatory bodies, in a case where there are contradictions within various legislative provisions.
At the same time, the foreign investment community remains concerned with the personal income taxation section, which foresees an unfriendly and discriminatory 30 percent income tax for foreign employees working in Ukraine, keeping in mind that the income tax rate for Ukrainian citizens stands at 15 percent.
This is not in line with international best practices and in some cases may contravene bilateral tax treaties. (Foreigners working in Ukraine will pay income tax at 15 percent on worldwide income if they declare themselves residents.)
This discriminatory taxation of professionals creates unfavorable conditions for recruiting new employees and retention of current expatriates and will adversely impact the business activity of many international companies operating in Ukraine.
The business community remains strongly committed to further promoting the necessity to balance the rights, obligations and accountability of taxpayers and the tax authorities.
More specifically, it is crucially important to introduce a provision into the draft tax code obliging authorities to be liable to taxpayers for failure to refund value-added tax or accurately execute legislatively prescribed acts on a timely basis.
Such practices are common around the globe and will bring Ukraine’s tax system in line with international best practices, helping to attract and retain investment.
The expert community, united under the chamber’s umbrella, continues its work on developing a well thought-through and viable final version of the draft tax Code, advocating for much-needed, comprehensive reform of the Ukrainian taxation system, promoting tax efficiency, fairness, neutrality as well as effective tax administration and enforcement, which are essential to increasing Ukraine’s competitiveness and helping to overcome the recession that the economy is experiencing and allowing the country to take advantage of global growth trends.
It is a big task and one that the business community is committed to getting right the first time.
Since the chorus of disapproval that met its first publication in June, some positive changes have been made. But a large number of discriminatory and unfavorable provisions remain, and more work is needed to create a fair and thoughtful final document that will likely be voted on in parliament in September.
The American Chamber of Commerce in Ukraine applauds the foresight of parliament in ensuring that this far-reaching piece of legislation is open for input from relevant stakeholders.
The chamber and the business community we represent has spent a lot of time preparing professional and detailed recommendations and targeted amendments that are geared to protecting the interest of the state as well as the private sector and the citizens of Ukraine.
Unfortunately, and despite assurances from the relevant parliamentary committee as well as the Cabinet of Ministers, a majority of these suggestions have not yet been incorporated into the latest version of the document.
Keep in mind that the original version of the draft tax code submitted to parliament on June 15 created such an outcry that the process of adoption was put on hold to solicit and accept input for the new comprehensive Tax Code.
Therefore, committees and working groups comprised of tax experts united under the chamber umbrella continue working on improving the quality and consistency of this piece of draft legislation within the framework of a working group on the draft tax code headed by Deputy Prime Minister Sergiy Tigipko, as well as with other relevant decision makers.
One of the primary focuses of the business community has been and will continue to be focused on ensuring equitable and equal treatment of all taxpayers. The latest version of the draft tax code no longer creates additional problems for taxpayers within the process of administration of taxes, but some outstanding issues remain rather restrictive.
An example of a positive improvement is a provision that foresees that a documentary check is conducted by tax authorities only by agreement with the taxpayer. This important change will significantly simplify doing business considering the historical number of tax audits experienced by the business community in the past.
Another positive sign is that the latest version of the draft tax code contains regulations that foresee a resolution in favor of the taxpayer, not regulatory bodies, in a case where there are contradictions within various legislative provisions.
At the same time, the foreign investment community remains concerned with the personal income taxation section, which foresees an unfriendly and discriminatory 30 percent income tax for foreign employees working in Ukraine, keeping in mind that the income tax rate for Ukrainian citizens stands at 15 percent.
This is not in line with international best practices and in some cases may contravene bilateral tax treaties. (Foreigners working in Ukraine will pay income tax at 15 percent on worldwide income if they declare themselves residents.)
This discriminatory taxation of professionals creates unfavorable conditions for recruiting new employees and retention of current expatriates and will adversely impact the business activity of many international companies operating in Ukraine.
The business community remains strongly committed to further promoting the necessity to balance the rights, obligations and accountability of taxpayers and the tax authorities.
More specifically, it is crucially important to introduce a provision into the draft tax code obliging authorities to be liable to taxpayers for failure to refund value-added tax or accurately execute legislatively prescribed acts on a timely basis.
Such practices are common around the globe and will bring Ukraine’s tax system in line with international best practices, helping to attract and retain investment.
The expert community, united under the chamber’s umbrella, continues its work on developing a well thought-through and viable final version of the draft tax Code, advocating for much-needed, comprehensive reform of the Ukrainian taxation system, promoting tax efficiency, fairness, neutrality as well as effective tax administration and enforcement, which are essential to increasing Ukraine’s competitiveness and helping to overcome the recession that the economy is experiencing and allowing the country to take advantage of global growth trends.
It is a big task and one that the business community is committed to getting right the first time.
Saturday, 3 July 2010
Sunday, 27 June 2010
Tax Proposal Upsets Business; Yanukovych Calls For Major Revisions
KIEV, Ukraine -- Since coming to power four months ago, President Viktor Yanukovych has promised to swiftly fix Ukraine’s ailing economy. But his all-powerful governing coalition may be tripping up in its first major test – an attempt at tax reform.
The business community is calling upon Ukraine’s government to shelve plans to adopt a new draft tax code in July, asking instead for the initiative to be put off until September. The tax plan, pushed by Prime Minister Mykola Azarov, is draconian and needs major revisions, business groups say.
Represented by the Chamber of Commerce in Ukraine and the European Business Association, top foreign and domestic investors see the document as a rushed and dangerous hodgepodge of new rules. The plan, they say, will not fix Ukraine’s messy and corrupt tax system – in which people who declare incomes honestly are punished with excessively high rates and others hide their profits and live in the shadows, depriving government of much-needed revenue.
The clear-cut message for Ukraine’s leadership is: The proposed tax code is unacceptable and could threaten jobs and businesses, partly by giving excessive powers to tax inspectors.
“If they adopt it very quickly without proper input from the relevant stakeholders, then we have an unacceptable mess that will not work for the business community or the country,” said Jorge Zukoski, president of the Chamber of Commerce in Ukraine. “It will be a step backwards, not forwards.”
On June 23, Azarov downplayed criticism of the 500-page tax code drafted by his government. He said his coalition, which controls parliament, should still proceed with plans to adopt it in early July.
However, he seemed to be contradicted the very same day by Yanukovych.
“I believe that the tax code in its current form is not balanced and requires a serious revision,” Yanukovych said on June 23. “The position is clear: the tax code should be adopted for industry, businessmen, and the people, rather than tax officers.”
The statement is a strong signal that Yanukovych is being responsive to the complaints from business community representatives, who warned that the proposal gives unchecked powers to tax authorities.
Many also fear it would not offer tax relief to small businesses that need it most, nor would it bring clarity to an existing system whose complexity fuels abuse and corruption.
Although the government gave no estimates, the proposed tax code seems to be driven by the state’s need to squeeze cash from as many taxpayers, individual and corporate, as possible.
The proposal allows tax inspectors to immediately levy and collect fines for violations. “This scares us,” said one business community leader. A company can challenge the assessment, but won’t get its money back until it wins the dispute in court, he said.
“This differs dramatically from the promises given by government to ease the taxation system,” said Volodymyr Kotenko, head of the tax committee at the European Business Association.
Also, the new tax code proposes removing a six-month transition period for taxpayers to adjust to new rules adopted. “As businesses and investors, we need predictability and equality in tax administration,” Zukoski said. “But this would bring the opposite.”
Oleksandr Zholud, an economist at the International Centre for Policy Studies, a Kyiv-based think tank, said the proposed tax changes could also give tax officials access to confidential bank information and the complete financial history of a company.
“God knows what this confidential information will be used for, given the high level of corruption seen with tax inspectors,” Zholud said.
But Azarov, who headed the tax administration with an iron fist under the authoritarian 1994-2005 presidency of Leonid Kuchma, continues trying to sell his draft tax code as one that will offer relief for businesses and broaden the tax base.
In defending his position, he points to plans to reduce the value added tax from the current 20 percent rate to 17 percent. The profit tax rate will be reduced, meanwhile, from 25 percent to 20 percent.
Some experts see the proposed tax cuts as good for big business, including the business oligarchs who back Yanukovych’s coalition. But they see little in relief for small businesses struggling to survive.
“The most important thing for many businesses is not the tax itself, but how easy and transparent it is to figure how much you should pay and how you can do that fast and simple,” said Anton Stefaniv, who runs a small printing business in Kyiv.
While running for president, Yanukovych promised tax holidays for small businesses. However, the proposed tax code would grant such a privilege only to the smallest of businesses – entrepreneurs who make less than $38,000 per year in revenues and businesses with less than $12,500 per year in revenue.
“The government should be focusing more on tax efficiency in collections, not just in widening the base dramatically,” Zukoski said. “One place to start if you want to broaden the base with tax cuts is to reduce the hefty social taxes on salaries.”
Tax experts said the proposed tax code also poses bad news for foreigners and many professionals – such as accountants, auditors and others – not allowing them to pay a single small and flat monthly tax earmarked for small business entrepreneurs.
Software programmer Oleksandr Shuvalov, who currently pays the single flat monthly tax, is one of many who will be affected. He fears that such a change will simply push many workers into the grey economy, which is where up to half of the nation’s economic activity takes place.
“My guess is that more companies will suggest that their employees work unofficially,” Shuvalov said.
So, what needs to be revised?
Experts want the government to introduce a tax code that introduces property taxes, curbs powers of tax authorities and simplifies the byzantine procedures.
“They obviously should decrease fines, which they suggest raising 10 times,” Zholud said. “For example, a minimum fine for a minor mistake they want to increase to Hr 1,700 (about $200), which is unacceptable.”
Yaroslav Misyats, head of the Small and Mid-Sized Business Party, said tax officials should bear responsibility for legal violations and negligence, and suffer fines as well.
Other say the revenue limit for business and entrepreneurs to qualify for tax holidays should be raised to a maximum of $70,000.
Among other suggestions are reductions in official payroll taxes that the government collects from employers. The current rate of payroll tax is 36 percent. That money goes to the pension fund, and the high rate prompts employers to not declare their workforce as official employees to evade the taxes.
Some experts believe that lower payroll taxes will encourage more employers to make their employees official and pay government taxes.
The business community is calling upon Ukraine’s government to shelve plans to adopt a new draft tax code in July, asking instead for the initiative to be put off until September. The tax plan, pushed by Prime Minister Mykola Azarov, is draconian and needs major revisions, business groups say.
Represented by the Chamber of Commerce in Ukraine and the European Business Association, top foreign and domestic investors see the document as a rushed and dangerous hodgepodge of new rules. The plan, they say, will not fix Ukraine’s messy and corrupt tax system – in which people who declare incomes honestly are punished with excessively high rates and others hide their profits and live in the shadows, depriving government of much-needed revenue.
The clear-cut message for Ukraine’s leadership is: The proposed tax code is unacceptable and could threaten jobs and businesses, partly by giving excessive powers to tax inspectors.
“If they adopt it very quickly without proper input from the relevant stakeholders, then we have an unacceptable mess that will not work for the business community or the country,” said Jorge Zukoski, president of the Chamber of Commerce in Ukraine. “It will be a step backwards, not forwards.”
On June 23, Azarov downplayed criticism of the 500-page tax code drafted by his government. He said his coalition, which controls parliament, should still proceed with plans to adopt it in early July.
However, he seemed to be contradicted the very same day by Yanukovych.
“I believe that the tax code in its current form is not balanced and requires a serious revision,” Yanukovych said on June 23. “The position is clear: the tax code should be adopted for industry, businessmen, and the people, rather than tax officers.”
The statement is a strong signal that Yanukovych is being responsive to the complaints from business community representatives, who warned that the proposal gives unchecked powers to tax authorities.
Many also fear it would not offer tax relief to small businesses that need it most, nor would it bring clarity to an existing system whose complexity fuels abuse and corruption.
Although the government gave no estimates, the proposed tax code seems to be driven by the state’s need to squeeze cash from as many taxpayers, individual and corporate, as possible.
The proposal allows tax inspectors to immediately levy and collect fines for violations. “This scares us,” said one business community leader. A company can challenge the assessment, but won’t get its money back until it wins the dispute in court, he said.
“This differs dramatically from the promises given by government to ease the taxation system,” said Volodymyr Kotenko, head of the tax committee at the European Business Association.
Also, the new tax code proposes removing a six-month transition period for taxpayers to adjust to new rules adopted. “As businesses and investors, we need predictability and equality in tax administration,” Zukoski said. “But this would bring the opposite.”
Oleksandr Zholud, an economist at the International Centre for Policy Studies, a Kyiv-based think tank, said the proposed tax changes could also give tax officials access to confidential bank information and the complete financial history of a company.
“God knows what this confidential information will be used for, given the high level of corruption seen with tax inspectors,” Zholud said.
But Azarov, who headed the tax administration with an iron fist under the authoritarian 1994-2005 presidency of Leonid Kuchma, continues trying to sell his draft tax code as one that will offer relief for businesses and broaden the tax base.
In defending his position, he points to plans to reduce the value added tax from the current 20 percent rate to 17 percent. The profit tax rate will be reduced, meanwhile, from 25 percent to 20 percent.
Some experts see the proposed tax cuts as good for big business, including the business oligarchs who back Yanukovych’s coalition. But they see little in relief for small businesses struggling to survive.
“The most important thing for many businesses is not the tax itself, but how easy and transparent it is to figure how much you should pay and how you can do that fast and simple,” said Anton Stefaniv, who runs a small printing business in Kyiv.
While running for president, Yanukovych promised tax holidays for small businesses. However, the proposed tax code would grant such a privilege only to the smallest of businesses – entrepreneurs who make less than $38,000 per year in revenues and businesses with less than $12,500 per year in revenue.
“The government should be focusing more on tax efficiency in collections, not just in widening the base dramatically,” Zukoski said. “One place to start if you want to broaden the base with tax cuts is to reduce the hefty social taxes on salaries.”
Tax experts said the proposed tax code also poses bad news for foreigners and many professionals – such as accountants, auditors and others – not allowing them to pay a single small and flat monthly tax earmarked for small business entrepreneurs.
Software programmer Oleksandr Shuvalov, who currently pays the single flat monthly tax, is one of many who will be affected. He fears that such a change will simply push many workers into the grey economy, which is where up to half of the nation’s economic activity takes place.
“My guess is that more companies will suggest that their employees work unofficially,” Shuvalov said.
So, what needs to be revised?
Experts want the government to introduce a tax code that introduces property taxes, curbs powers of tax authorities and simplifies the byzantine procedures.
“They obviously should decrease fines, which they suggest raising 10 times,” Zholud said. “For example, a minimum fine for a minor mistake they want to increase to Hr 1,700 (about $200), which is unacceptable.”
Yaroslav Misyats, head of the Small and Mid-Sized Business Party, said tax officials should bear responsibility for legal violations and negligence, and suffer fines as well.
Other say the revenue limit for business and entrepreneurs to qualify for tax holidays should be raised to a maximum of $70,000.
Among other suggestions are reductions in official payroll taxes that the government collects from employers. The current rate of payroll tax is 36 percent. That money goes to the pension fund, and the high rate prompts employers to not declare their workforce as official employees to evade the taxes.
Some experts believe that lower payroll taxes will encourage more employers to make their employees official and pay government taxes.
Thursday, 19 February 2009
Khodorkovsky faces fresh charges
A Moscow judge has ordered ex-tycoon Mikhail Khodorkovsky to be brought from his Siberian jail to Moscow, to face trial on new charges next month.
The judge also ordered the transfer of Platon Lebedev, Khodorkovsky's former business partner, from his prison in northern Russia to the capital.
Once Russia's richest man, Khodorkovsky was jailed for nine years in 2005 for tax evasion and other offences.
The former tycoon faces new theft and embezzlement charges.
Correspondents say the Russian authorities apparently want to keep Khodorkovsky behind bars well beyond the end of his first sentence.
BBC Russian affairs analyst Stephen Eke says the case no longer generates much public interest in Russia.
Supporters of the ex-boss of Russia's disbanded oil firm Yukos say the original charges were politically motivated because Khodorkovsky had funded Russian opposition groups.
'Ridiculous allegations'
"A judge of the Khamovnichesky [Moscow] district court handed down a ruling for the transfer under guard from places of detention to Moscow in respect of Mikhail Khodorkovsky and Platon Lebedev," the press secretary of Moscow City Court, Anna Usacheva, told Interfax news agency.
"Preliminary hearings in the new trial of Khodorkovsky and Lebedev have been set for March 3," she said.
Khodorkovsky has been serving his sentence in Krasnokamensk, in the east Siberian region of Chita, close to the Chinese border, about 4,700km (3,000 miles) east of Moscow.
He remains a strong critic of the Kremlin, last year accusing Russian ex-President Vladimir Putin of having used the law to target political enemies, especially businessmen like himself.
Responding to the announcement of a new trial, his lawyers said: "The bureaucrats of the security forces have wasted many years, huge sums of state money and their own reputation by fabricating these ridiculous allegations."
Lebedev was also convicted of tax evasion at the same trial in 2005 and jailed for nine years.
Yukos, once Russia's biggest oil company, was declared bankrupt in 2006 and ceased to exist as a legal entity in November 2007.
The company had been steadily dismantled after being accused of massive fraud and tax evasion by the Russian authorities.
Yukos maintained it was the victim of a concerted political campaign by a government which wanted to discredit its executives and gain control of vital energy assets.
Russian officials deny the allegation.
The judge also ordered the transfer of Platon Lebedev, Khodorkovsky's former business partner, from his prison in northern Russia to the capital.
Once Russia's richest man, Khodorkovsky was jailed for nine years in 2005 for tax evasion and other offences.
The former tycoon faces new theft and embezzlement charges.
Correspondents say the Russian authorities apparently want to keep Khodorkovsky behind bars well beyond the end of his first sentence.
BBC Russian affairs analyst Stephen Eke says the case no longer generates much public interest in Russia.
Supporters of the ex-boss of Russia's disbanded oil firm Yukos say the original charges were politically motivated because Khodorkovsky had funded Russian opposition groups.
'Ridiculous allegations'
"A judge of the Khamovnichesky [Moscow] district court handed down a ruling for the transfer under guard from places of detention to Moscow in respect of Mikhail Khodorkovsky and Platon Lebedev," the press secretary of Moscow City Court, Anna Usacheva, told Interfax news agency.
"Preliminary hearings in the new trial of Khodorkovsky and Lebedev have been set for March 3," she said.
Khodorkovsky has been serving his sentence in Krasnokamensk, in the east Siberian region of Chita, close to the Chinese border, about 4,700km (3,000 miles) east of Moscow.
He remains a strong critic of the Kremlin, last year accusing Russian ex-President Vladimir Putin of having used the law to target political enemies, especially businessmen like himself.
Responding to the announcement of a new trial, his lawyers said: "The bureaucrats of the security forces have wasted many years, huge sums of state money and their own reputation by fabricating these ridiculous allegations."
Lebedev was also convicted of tax evasion at the same trial in 2005 and jailed for nine years.
Yukos, once Russia's biggest oil company, was declared bankrupt in 2006 and ceased to exist as a legal entity in November 2007.
The company had been steadily dismantled after being accused of massive fraud and tax evasion by the Russian authorities.
Yukos maintained it was the victim of a concerted political campaign by a government which wanted to discredit its executives and gain control of vital energy assets.
Russian officials deny the allegation.
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